5 Important Things to Know About Your Credit Score

Hi Friend,

Ever wondered how our credit scores are made? I was curious about credit scores and how they can make or break a person's financial life. So, I looked around and this is what I want you to know.?

In 1841, there was commercial credit reporting. Commercial credit reporting was used by merchants to evaluate the creditworthiness of potential business customers.

In the late 19th century, department stores and mass retailers began to use consumer credit reporting. As a result, they collected information about their customers and submitted it to a local credit bureau.

In 1956, Fair Isaac Corporation (FICO) was founded. FICO initially worked with business clients to develop credit scoring models.

In 1989, FICO introduced the 3-digit score. This is when the first universal credit score was born.

Today, only three major bureaus exist: Experian, Equifax and TransUnion. FICO scores are considered to be the most widely used type of credit score. Five factors are used to calculate an individual’s FICO credit score.?

Let’s take a look at each factor.

Payment History

Let me explain payment history. It tracks how you’ve paid your bills over time and makes up 35% of your credit score—the biggest part. Even one late or missed payment can lower your score.

Usually, a late payment won’t appear on your report until it’s 30 days overdue. If you pay late but in full, lenders might not report it. However, partial payments usually do.

If your score is already low, it might not hurt as much, but it still matters. My top tip? Always try to pay on time to keep your credit healthy.

Amount Owed

This makes up 30% of your FICO? Score. Basically, the more debt you carry, the harder it is to stay on top of payments.

FICO looks at things like your total debt, the number of accounts with balances, and your credit utilization (how much of your available credit you’re using).

Maxing out your cards? That’ll hurt your score. Keeping your usage low? That helps. My advice? Pay down your loans and stay on top of your debt—it’ll make a big difference in your credit.

Length of Credit History

Your credit history length makes up 15% of your FICO? Score. It might not seem like much, but it can still affect your chances of getting a loan.

Lenders look at how long your accounts have been open, from your oldest to your newest. To grow your credit history, you can apply for a secured credit card, which is backed by a deposit.

Another option is to get a co-signer with good credit or be added as an authorized user on their card. And of course, use your card wisely—keep balances low and pay on time.

Credit Mix

Your credit mix, which includes credit cards, loans, and mortgages, makes up 10% of your FICO? Score.

While it’s not a huge factor, having a variety of accounts can help if you’re aiming for a top score. But don’t apply for new credit just to improve your mix—it can backfire.

Each application lowers your score slightly, and opening too many accounts at once can make lenders think you’re in financial trouble.

If you’re missing a type of credit, weigh the risks. Is it worth a score dip just to prove you can handle a small loan?

New Credit

New credit makes up 10% of your FICO? Score. Applying for it leaves inquiries on your report for two years.

While inquiries usually have a small impact, too many can hurt your score, especially if you’re opening accounts quickly. Even if you’ve had credit for a while, a new account can still lower your score.

When lenders check your credit, it can drop your score by a few points and reduce the average age of your accounts. If you’re rebuilding credit, opening new accounts can help, but be careful not to overdo it.

Conclusion

Considering all this, understanding your credit score doesn’t have to be overwhelming. By focusing on key areas like payment history, amount owed, and new credit, you can take control of your financial future.

Whether you're building credit from scratch or trying to improve your score, remember that small, consistent efforts make the biggest difference.

Pay on time, keep your balances low, and don’t rush to open new accounts. Your credit score is a powerful tool—when you understand it, you’re better equipped to make smarter financial choices.

So, take charge and let your credit score work for you, not against you!

| ??What I Have Learned

“A man who pays his bills on time is soon forgotten.”

~Oscar Wilde~

|??Guest Author

As Financial Accountability Coaches, we don’t sell investments, insurance, or other products, but our clients might need these services sometimes. In this blog Essential First Steps Before Meeting A Financial Advisor my colleague Conner Tyson says meeting with a financial advisor can bring up many emotions—like fear, anxiety, or feeling unsure.

As a result he shares tips on how to get ready for meetings with your financial advisor and team members. Essentials First Steps Before Meeting A Financial Advisor ?

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??See you Nov. 1st!

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