How Your Credit Score is Broken Down

Credit scores are important. They’re also boring. And complicated.

This is an ad-free guide that tells us everything we need to know without wasting our time. If you already have a good handle on credit scores, consider bookmarking this page for anyone you know (or work with) who doesn’t.


  1. What is a Credit Score?
  2. Where Does it Come From?
  3. How is it Calculated?
  4. What’s a Good Credit Score?

What is a Credit Score?

Your credit score is a three digit number used by lenders and many other institutions to gauge how much they can trust you to pay back debts, loans, or any other type of financial obligation. Similar to your service’s fitness test score, it’s a common metric used by institutions to understand your capabilities. The model isn’t perfect, and maybe it doesn’t even measure the things we think are important. That said, if we’re in bad shape physically or financially, it’s a simple fact that our score will suffer. The difference is that while our fitness score might not affect our day to day lives much, our credit scores can.

Where Does it Come From?

Short Answer:

Credit bureaus keep credit reports on each of us based on our credit history. Credit reporting companies (different than the bureaus) generate our credit scores based off of the credit reports they get from the bureaus.

Better Answer:

Credit scores are generated by Fair Isaac Corporation (FICO), VantageScore, or other third-party companies and can be given to potential lenders when somebody applies for anything from a phone to a loan. The information used to generate this score comes from credit reports, which are kept by the three primary credit bureaus: Experian, Equifax, and TransUnion. These three bureaus each have their own way of organizing and presenting a credit report, but they all have the same basic elements:

  • Credit Usage
  • Credit History
  • Credit Inquiries
  • Public Records (Involving loan delinquency etc.)

If you’re in the military, pay your utility bills on time, and have so far avoided bankruptcy, chances are you don’t need to worry about public records. If you struggle to do those things, we get it. Start here, and come back to this page later. 

How is it Calculated?

According to FICO and conventional wisdom, roughly 90% of lenders use a FICO score when an individual applies for credit. Here’s how a FICO score is calculated:

Payment History: 35 %

How you’ve paid your bills in the past is the biggest component of your credit score, and it’s not hard to understand why. If you’re applying for a mortgage, car loan, or even just a credit card, lenders want to know that you’ve paid your bills on time in the past. Any credit payment- good or bad- from the past several years (typically seven) shows up in this category, whether it’s a $125 monthly credit card minimum or a $3,500 mortgage payment.

Every time you make a payment on time, your payment history is better for it. Every time you miss one, it suffers. This is the easiest category to mess up. It’s also the easiest one to never get hit on simply by setting all accounts up with autopay. More on that to follow.

Amounts Owed: 30 %

Every account you owe money on falls into the “Amounts Owed” category of your FICO score. The vast majority of accounts that show up on a credit report are either installment loans or revolving accounts. Installment loans are a one time loan given to you, then paid back on a predetermined schedule like an auto loan, mortgage, or career starter loan. A revolving account is an account that sets a limit on how much you’re able to charge to the account and comes with terms and conditions that dictate how you must pay the debt off. The most common example is a credit card, say with a $75 or 2% monthly minimum payment requirement and 15% APR.

While it’s important for you personally to know how much you still owe on your car, home, career starter loan, or other types of installment accounts so you can plan properly and avoid overextending yourself, your credit score is affected much more by your revolving accounts than your installment loans. Specifically, the most important part of your “Amounts Owed” is your Credit Utilization Ratio

Utilization Ratio

Utilization Ratio is a measure of what portion of your credit limit you are using. To find yours, divide the total of your credit card balances by the total of your credit limits, and multiply by 100. For example, let’s say you’ve got two American Express Cards and one Navy Federal Card with the balances and limits below. 

AMEX 1$2,500$6,000
AMEX 2$1,000$8,000
Navy Fed 1$2,000$5,000
Example Credit Utilization Ratio (Math Below)

If you don’t like math, we get it. Use Credit Karma to calculate your utilization ratio and monitor every other aspect of your credit if you’re curious.

The standard number to shoot for is 30% or less, but as always it’s best to automate your credit card payments in full and avoid carrying a balance from month to month. This will not only minimize your credit utilization ratio while simultaneously boosting your payment history (the two best things you can do for your credit score), it will also protect you from racking up more debt while being victim to the powers of your credit card’s APR.

Length of Credit History: 15%

The age of your accounts is the next largest component of your credit score. The older, the better… especially if you have a good payment history and a low credit utilization ratio. According to FICO, there are a number of ways the age of your accounts are used to calculate this component of your score, including average age, oldest and youngest ages of accounts, and when the last time your accounts have been used. This is something to think about when considering whether to consolidate your debt or close credit cards you’re not using. If you’re thinking about doing either of those things, chances are you’re working towards paying off all of your damaging debt, and you should absolutely do it. If you’re doing it for perceived convenience or because you simply haven’t used the credit card your parents wisely opened for you when you were 17, realize that your credit score can take a slight hit for a couple of months when you close out old accounts.

If you have no credit history whatsoever, fear not. You’re probably in a great spot because you’re not in crippling debt and you can guarantee a nearly perfect credit history starting as soon as you choose to begin.

Credit Mix: 10%

Just as diversification is good for your portfolio, it’s good for your credit score too. Though it comprises only 10% of your credit score, a good credit mix can give it a boost that might make all the difference. The essence of what creditors like to see here is a mix of installment and revolving credit accounts (and success paying your bills on time in these different accounts). For example, good payment history on two or three different credit cards, an auto loan, a personal installment loan (such as the Career Starter Loan), and a mortgage gives creditors confidence that you’re able to manage different types of credit accounts responsibly. For the most part, credit mix takes care of itself for those who choose credit cards wisely and buy cars and homes they can afford. 

New Credit: 10%

Opening a large number of new accounts in a short time period is understandably alarming to potential lenders. There’s not a ton to consider here beyond the basic understanding that a large number of new accounts in a short time span can hurt your credit.

What’s a Good Score?

The diagram to the right tells us just about everything we need to know. Ideally, we’d all be in the “Very Good” or “Exceptional” categories. As we’ve seen, higher credit scores provide you more opportunities, better access to exclusive offers from a variety of institutions, and save you money. For those of us that are realizing we aren’t paying attention to our credit like we should, we get it. Click below to learn what we can do about it.

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