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You must have heard of a credit score – a three digit number that creditors use to determine how likely you are to pay your bills on time. Have you ever wondered what it actually consists of and how the numerical evaluation of your financial eligibility is made up? Some people get a credit card approval within seconds, while others are denied for credit point-blank. Let’s have a closer look at what makes up a credit score.

1. Payment history. It makes up 35% of your credit score and it is understandable why. For most lenders it is vital to know how timely you are at paying your bills and if you pay them at all. Late payments, collections, and bankruptcies are included in this part of your credit score. More recent occurrences affect your credit score more adversely than older ones.

2. Outstanding debt. It takes up 30% of your credit score. This is the amount of money you owe on credit cards, auto loans, and home loans. Also included in this part of the credit score is how close your credit cards are to the credit limit. Credit cards that are close to or over your credit limit reduce your overall credit score.

3. The length of your credit history. It makes up 15% of your credit score. The longer your credit history, the better your score will be. Having a longer credit history gives a more accurate view of your payment patterns, while having no credit history is nearly the same as having a bad credit history. The credit grantors want to be able to predict what you are likely to do in the future.

4. Inquiries made on your credit report. They account for 10% of your credit score. Each time you make a credit-based application, an inquiry is placed on your credit report. If you make several applications for credit or loans within a short period of time, you will have several inquiries on your credit report, and that, in its turn, will look as if you are either in a financial trouble or are accumulating a lot of debt. The brighter side is that only those inquiries made within the past year are included in your credit report.

5. The types of credit you have. These are the final 10% of your credit score. Having different kinds of credit, i.e. loans and credit cards, looks better than having only one kind of credit. However, there is no ideal mix of credit that you should have. This factor is not viewed as being important like the above-mentioned factors and might not be included in your credit score at all. Other information on your credit report might be sufficient to compute your credit score.

Building and maintaining a good credit score is essential for a number of things – from applying for automobile loan to getting utilities turned on. Keep in mind the factors that make up your credit score and start improving your financial state today.