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The Building Blocks of Your Credit Score: What You Need to Know

Updated: Jan 19

Once upon a time, there were three little pigs, and they all had three little numbers.

three little pigs in the woods holding signs: 400, 600, 800 and the big bad wolf hiding behind a tree

The first little pig had a wee little credit score in the 400 range. She tried her best to get credit but was forced to use only cash or prepaid credit cards. When the big bad wolf appeared at her door, he huffed and puffed and sent her spirits crashing down.

The second little pig had a credit score in the 600 range, and she noticed a significant difference in the credit options available to her. But when the big bad wolf appeared at her door, he huffed and puffed and blew her score back.

the big bad wold blowing out a lot of air

But the third pig? She had a credit score in the 800 range and could get access to all the credit options at exceptional interest rates. When the big bad wolf appeared at her door, he huffed and puffed, and she remained unphased.

Here's where you'd typically see "The End," but this story is just getting started!

So what makes up this whimsical number?

A credit score is determined by your payment history, how much debt you have (aka, your utilization), the length of your credit history, new accounts, and types of credit used.

a donut chart: new credit 10%, credit mix 10%, credit history 15%, utilization 30%, payments 35%

Payment History

Think of this like a kindergartener's sticker chart. For every on-time payment you make, you get a gold star. If you haven't seen this chart in your credit report, I highly recommend taking a peek. It's important to note that even a few months without gold stars can have a negative impact since this portion of your credit score is weighted the heaviest at 35%.

Your Debt Total (Utilization)

Lenders want to know how much debt you're taking on. Are you an overloaded toy boat sinking in the bathtub? Or are you Tugboat Bill chugging away without issues?


One really easy measuring stick is your credit card utilization. Let's say you have a card with a $10,000 limit, and you've charged $7,000 on it. Your utilization rate is 70%. In the financial world, that is the danger zone. If you aim to raise your credit score (or keep it in good standing), you'll want a 10-30% utilization rate instead. Let's look at what would mean for how much you should charge on that $10,000 limit card: a max of $1,000 if you are trying for an excellent score, up to $3,000 if you are looking for a good score.

Your total debt is weighted at 30%.


Length of Credit History

Are you the little engine that couldn't, or are you Thomas the Train and in it for the long haul?

Our credit score looks at how long we've had our credit open. The main point here... only close your longest-owned credit card if it's for a really good reason!

Hint: Dave Ramsey telling you to is not a really good reason.

Your length of credit history is weighted at 15%.


Credit Mix

Do you have a whole posse like Mulan, or do you live alone in a tower like Rapunzel? Okay, that one's a stretch, but stick with me!


Lenders look at the types of loans you currently have/have had in your name. Do you have any installment loans (such as a car, personal, or mortgage)? Do you have any revolving accounts (such as credit cards and other credit lines)? Showing that you can manage both types of accounts responsibly helps your score.

Your credit mix is weighted at 10%.


New Accounts

Are you holding steady like the fairy godmothers, or are you flitting about like Tinkerbell?

If you open too many accounts at once, it's a big red flag to lenders-- you may be taking on too much debt at once.


HOT TIP: if you're rate shopping for a car loan or mortgage, anything you do within 14-30 days is only considered ONE inquiry. (There's a day range because it depends on the lender's credit score model.) Which means there is minimal impact on your credit score.

How often you open new lines of credit is weighted at 10%.

It's necessary to keep an eye on all these factors when working towards improving or maintaining a good credit score. And, before you know it, you'll be living happily ever after.

gif: writes out The End

Here's to you,

Melissa Mittelstaedt

Money Coach | Accredited Financial Counselor®

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