- 35% payment history (only includes payments later than 30 days)
- 30% debt-to-credit ratio
- 15% length of credit history
- 10% new credit
- 10% type of credit in use (installment, revolving, consumer finance)
Common Mistakes to Avoid
Once you see how the scores are determined, it is easier to see how people make common mistakes that can affect their credit score. Here are few things to avoid:
1. Cancelling old credit accounts: Many people who have credit problems end up cancelling their credit cards after they have paid them off, to avoid future problems. If these happen to be the cards that you have had open the longest, cancelling them will shorten your credit history, which makes up 15% of your total score. Thus, canceling older cards inadvertently reduces your credit score. If leaving the account open is not costing you money in the form of annual fees, storing the card in a place where you will not use it, or even destroying the card without closing the account, will keep the length of your credit history intact without tempting you to use the card again. In addition, if you have balances on some of your other cards, keeping accounts open will give you a better debt-to-credit ratio.
2. Choosing specific payments: When people are trying to pay off debt, they sometimes decide to pay off specific debts first and leave others until later. While done with good intentions, this can be a huge negative on your credit score, as it often means all but one of the debts will be late. While there is a 30-day grace period before late payments will affect your credit score, this is also the area that has the most impact on your score, at 35%. Even a single payment that exceeds the 30-day period can significantly lower your credit score. You want to pay at least the minimum payment on all your debts each month. If you do end up having to make a late payment, make sure the payment doesn't exceed the 30-day limit.
