Whether you’re applying for a credit card, a car loan, or a mortgage, your credit score is one of the first things lenders look at.
And understanding what affects your credit score can give you a serious edge when it comes to borrowing money.
Despite its importance, your credit score isn’t built on secret formulas or confusing math. It’s a straightforward blend of five key components.
The challenge? Many people don’t know what these components are, or they’ve been misled by misconceptions.
Let’s fix that.
We’ll unpack the 5 components of a credit score, sort fact from fiction, and share practical ways to improve your credit score—whether you’re starting fresh or figuring out how to rebuild credit after a setback.
Where Credit Scores Come From and Why They Matter
Before a lender decides whether to approve your loan or credit card application, they want to know one thing: how likely are you to pay them back? That’s where your credit score comes in.
Your credit score is based on the information in your credit reports, which are compiled by three major credit bureaus: Equifax, Experian, and TransUnion.
These companies collect data from banks, credit card companies, and other lenders to create a record of how you’ve handled credit over time.
From that data, scoring models like FICO and VantageScore calculate your score—a number typically between 300 and 850. The higher your score, the more confident lenders are that you’ll repay your debts.
That confidence can lead to lower interest rates, higher credit limits, and better loan terms (meaning how long you have to repay the loan, how much interest you’ll pay, how often payments are due, and any fees or penalties).
Here’s something most people don’t realize: you don’t have just one credit score.
Each bureau may have slightly different information, which can lead to small variations in your score. Plus, different lenders might use different scoring models, which is why your score can look a little different depending on where you check it.
That’s why understanding how credit works—and how to build or improve your credit score—is so important.
The 5 Components of a Credit Score
Building strong credit starts with understanding what affects your credit score.
Both FICO and VantageScore, the two major scoring models, look at five main factors, each of which plays a different role in telling your credit story.
Each scoring model weighs these factors a little differently when calculating your credit score, but the core ingredients are the same (we’re considering the VantageScore 4.0 model):
- Payment history: 35% FICO, 41% VantageScore.
- Credit utilization: 30% FICO, 20% VantageScore.
- Length of credit history: 15% FICO, 20% VantageScore.
- Credit mix: 10% FICO, 20% VantageScore.
- New credit: 10% FICO, 11% VantageScore.
Getting familiar with the 5 components of a credit score can help you take practical steps to improve your score and avoid common pitfalls that might be dragging it down.
Payment History
Your payment history is the single most important factor in determining your credit score.
It tells lenders whether you’ve paid past credit accounts on time, which is a strong signal of how likely you are to repay future debts.
When you make payments on things like credit cards, car loans, student loans, or mortgages, those on-time payments usually get reported to the credit bureaus. These agencies collect your credit data and compile it into reports that scoring models use to calculate your credit score.
The more consistently you pay on time, the better your score will be. In fact, it’s one of the most effective ways to improve your credit score over time.
But missing a payment by even 30 days can damage your credit score. Depending on your credit history and how late the payment is, your score could drop by anywhere from 50 to 120 points.
The longer the payment is overdue, the greater the impact on your score. And even one late payment can stay on your credit report for up to seven years, although its effect fades with time.
Here’s what typically gets reported:
- Credit cards
- Retail store cards
- Mortgages
- Auto loans
- Student loans
- Personal loans
Some bills, like rent, utilities, or phone plans, might not show up on your credit report unless you’re seriously behind on payments.
But that’s changing. Some services now let you report the payment history for these bills yourself, which can help if you’re trying to rebuild credit.
One of the easiest ways to avoid late payments and protect your score is to set up automatic payments for at least the minimum due.
Credit Utilization
Credit utilization is the amount of credit you’re using compared to your total available credit.
Here’s a simple example: if you have a credit card with a $5,000 limit and a $1,000 balance, you’re using 20% of your available credit.
Most experts suggest keeping your credit usage under 30%. But if your goal is to improve your credit score, staying below 10% is even better.
A lower utilization shows lenders you’re managing your credit well and not relying too heavily on borrowed money.
Here are a few simple ways to lower your credit utilization:
- Pay down your credit card balances: This is one of the fastest and most effective ways to improve your credit profile.
- Ask for a credit limit increase: If you’ve been making payments on time, your credit card company might raise your limit. That gives you more available credit, which can lower your usage rate (that is, if you don’t increase your spending).
- Make multiple payments during the month: Even if you pay your card in full, the balance that gets reported to the credit bureaus is usually the amount shown on your monthly statement. Paying before the credit card company generates your statement can help lower that reported balance.
Managing your credit utilization doesn’t have to be complicated. Simple strategies like these can help keep your usage in check and even potentially improve your credit score.
Set up balance alerts or check your account regularly, whether online, through your card’s app, or by reviewing your statements. That way, you’ll know when your credit usage is creeping up and can use one of the strategies above before it affects your score.
Length of Credit History
This part of your score looks at how long your credit accounts have been open. That includes the age of your oldest account and the average age of all your accounts.
The longer your credit history, the more confident lenders feel about your reliability.
Someone who’s managed credit well for 15 years usually looks more trustworthy to lenders than someone who opened their first card six months ago—even if both have spotless payment records.
That’s why it’s generally a good idea to keep old credit accounts open, even if you rarely use them. Closing them can shorten your credit history and potentially lower your score.
Credit Mix
Lenders like to see that you can handle different types of credit—not just one kind. That’s where your credit mix comes in.
There are two main types of credit:
- Revolving credit like credit cards or lines of credit, where you can borrow, repay, and borrow again up to a set limit.
- Installment credit like car loans, mortgages, student loans, or personal loans, where you make fixed payments over time.
Credit mix only makes up about 10% of your score, but having a healthy variety can still give you a slight boost if everything else is in good shape.
That said, don’t open new accounts just to improve your credit mix.
It’s better to focus on managing the accounts you already have responsibly. A strong credit mix is something that builds naturally over time as your financial needs change.
New Credit
Every time you apply for a new credit account, like a credit card or car loan, it’s recorded on your credit report. This part of your score looks at how recently you’ve applied for or opened new credit.
When a lender reviews your credit as part of the application process, they create what’s called a hard inquiry. These can cause a small, temporary dip in your score—usually just a few points. Hard inquiries can stay on your report for up to two years, but their impact on your credit score tends to fade after the first year.
Not all credit checks affect your score: soft inquiries, like checking your own credit or receiving a pre-approval offer, don’t impact your score at all.
Opening several new accounts in a short period can make lenders uneasy. It might look like you’re taking on more debt than you can manage, especially if your credit history is still young.
And if you’re shopping around for a car loan or mortgage, for example, you won’t get penalized for comparing offers.
Most credit scoring models treat multiple applications for the same type of loan within a short window (usually 14 to 45 days) as a single inquiry, which won’t hurt your score.
How To Rebuild Credit
If your credit score needs work, don’t stress. A few smart habits and a bit of patience can go a long way when it comes to figuring out how to rebuild credit.
Start by creating a budget to stay on top of your bills.
Then, set up automatic payments so you never miss a due date. Payment history is the biggest factor in your credit score, so consistently paying your bills by the due date can make a big impact.
If you have credit card debt, try to pay it down, especially on cards that are close to their limit. Using less of your available credit shows lenders you’re managing debt well, which can help improve your score.
New to credit?
A secured credit card lets you put down a cash deposit that becomes your spending limit.
Use it for small purchases and pay it off in full each month to improve your credit score and build a strong payment history. You could also become an authorized user on someone else’s card to benefit from their good credit habits.
To stay in control while rebuilding your credit, consider financial partners like Kudzu, who offer helpful tools like automatic savings, account activity alerts, and strong data protection.
With most banks and financial technology companies (including Kudzu), your deposits are FDIC insured up to $250,000, so your money stays safe while you work toward a stronger financial future.
Credit Confusion? Not Anymore
Figuring out what affects your credit score can feel like trying to win at poker with a handful of jokers, but it’s not as daunting as it seems.
Once you know the 5 components of a credit score, you can stop guessing and start making credit work for you.
Whether you’re building credit from scratch, managing it proactively, or bouncing back after a few bumps, Kudzu gives you the tools you need to stay informed, organized, and in control. From smart saving features to real-time alerts, we can help you keep your finances moving in the right direction.
Ready to take charge of your credit and your financial future? Download the Kudzu app today.
