Whenever you try to borrow money or open a credit account, your lender uses a number called a credit score to help determine how risky you are as a borrower. If you have a low credit score, the lender may refuse your loan request or charge you a higher interest rate than if you had a better credit score. Credit scores are calculated based on credit information that falls into several categories.
Payment History
Your track record of making payments on your debts is the most important factor in determining your credit score. According to the Fair Isaac Corporation (FICO), your payment history makes up about 35 percent of your credit score. If you miss debt payments or have late payments on your credit history, your credit score will tend to be lower than if you never miss a payment.
Debt Level
The amount of debt you carry is the second most important component of a credit score. Quicken Loans says your total debt makes up about 30 percent of your credit score. When you carry high levels of debt, you are more likely to miss payments. High balances on credit cards may be especially detrimental to credit scores, because credit utilization -- the amount of debt you carry relative to your credit limit -- plays a role in determining a credit score. Using a low percentage of your available credit to produce a low credit utilization ratio helps boost your credit score.
Length of Credit History
The length of your credit history is another factor that influences credit scores. Younger borrowers who do not have a proven track record of handling debts are considered riskier than older borrowers with many years of credit history. FICO states that the length of your credit history is responsible for about 15 percent of your credit score.
Access to New Credit
Gaining access to or requesting new credit can impact your credit score. When you get new credit, lenders cannot be sure that you will use it responsibly, so opening new credit accounts tends to lower your credit score. If you use accounts responsibly by keeping low balances and making payments on time, the negative effect of new credit tends to diminish over time. New credit makes up about 10 percent of your credit score.
Credit Mix
The types of credit accounts and debts you have make up the final 10 percent of your credit score. According to the Consumer Federation of America and FICO, carrying a diverse mix of credit and debt, such as credit cards, a mortgage, retail accounts and installment loans, may improve our credit score.
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