Understanding Your Credit Score

Get the details on what makes up your credit score and how you can obtain your credit score and credit report.

The rewards credit cards you're able to pick up will depend heavily on your credit score and credit report. With a clean report and high credit scores, you'll be able to grab up some of the best credit cards on the market. If your score is low or you have some delinquencies on your report, it can be a little harder to obtain good credit cards. This page will cover the details on what makes up your credit score and how you can obtain your credit score and credit report.

What Makes Up Your Credit Score

Before you dive into the world of credit cards, you'll first want to know about your credit score. There are many different types of credit scores, but the most widely used is FICO. Your FICO credit score is made up of the following:

  • 35% Payment History
  • 30% Amounts Owed
  • 15% Length of Credit History
  • 10% New Credit
  • 10% Credit Mix

Credit Cards have a heavy impact on your overall credit score. They contribute to all five of these categories and can make or break your score. Listed below are the details on each of these pieces with respect to credit cards and their usage.

What makes up a credit score. myFICO.com

Payment History

Payment history makes up the most of your percentage. This means that missing credit card payments will slash your score. If it's one thing you do not want on your credit card report, it's a 30-120 day delinquency. Negative marks generally hang out on your credit report for 7 years. So if you're falling behind on payments, contact the lender/bank and work something out. Ignoring it will hurt you in the long run.

Amounts Owed

Amounts Owed is a big one in the credit card world. I frequent see family and friends panic when their credit limit has been raised. When I congratulate them, I'm usually given a funny look.

The thing about Amounts Owed is that it's all based on percentage and it is one of the categories that can cause your credit score to bounce around the most. When it comes to credit cards, you want your amount owed to be less than 30% of your card's balance (preferably lower than that).

When your statement ends for the period, the balance that you owe on the card will be sent to the credit bureaus. That amount will be reported on your credit report for that month. So if your July statement ends and you have a balance of $957 on your credit card, that's what will be displayed on your credit report for July. And that's where the credit limit comes into play.

Your report will show you the details of each account.

If the card that reported the $957 balance has a $1,000 credit limit, it will also report that you're using 95.7% of your total balance. This will cause your credit score to drop. Now if your credit limit was $10,000 and your statement ended with $957, you would only be using 9.57% of your credit limit. This would be great and your score would not be negatively impacted. In summary, using $957 out of $10,000 available credit is significantly better than using $957 out of $1,000 in available credit.

That example is just for one credit card. If you have more than one credit card than you'll want to make sure that your amounts owed across all credit cards is still below 30% and that no specific card is above 30%.

Amounts Owed

In the image above, Person A is has more than 30% in Amounts Owed reporting to their credit report. Person B has the same balances but higher credit limits on the same cards, so they aren't being impacted by letting those amounts post to their credit report. They also have an extra credit card that has a $13,000 limit on it that they aren't using just for extra padding and to help their score.

You don't need a $25,000 credit limit on every card, but you'll want a credit limit that supports the amount you run across the card that will not negatively impact your score when reported. For example, if you tend to spend $1,000 on your credit card every month, you'll want a credit limit of about $7,000 to $10,000 on that card.

If you can't get a higher credit limit, you can always pay your card off (or down to a percentage less than 30%) before your statement ends. That way, you will not be negatively impacted.

One last thing about Amounts Owed. As previously stated, it's one of the most active parts of the credit score pie. This category strictly has to do with amounts owed. If July reports with a high balance and your score falls 50 points, you can pay off that card and have it report with a low (or no balance) in August and you will likely gain most if not all of those 50 points back (assuming nothing else changed in your report).

Length of Credit History

Credit History is something that takes time to build up. Most people will usually start their credit history with student loans for college, but there are people who acquire credit cards at an early age.

In this category, length is the average of all accounts that you have in your name. This will be credit cards, loans, mortgages, and any other type of credit tied to your name. This also includes opened accounts and closed accounts. Closed accounts will drop off your credit report after 10 years.

As you apply for credit cards, you will impact your average credit history. Depending on your credit history length, this can cause your credit score to possibility drop a few points since you will be lowering your average by adding new lines of credit. It can also raise your credit because you will have gained more credit limit and thus improved the space for 'Amounts Owed'. There are many ways this can play out, so I wouldn't stress too much about the result of applying for cards as long as it makes sense to do so.

New Credit

New Credit refers to how many credit accounts you've opened up within a short amount of time. Every time you apply for new credit (or your credit gets pulled for any other reason), you will receive in Inquiry. The more of these you have, the greater risk you are seen to lenders.

Unless you're picking up 1-2 credit cards every month, this shouldn't be anything to truthfully worry about. Most credit card companies will start to decline your applications if they see that you've opened too many new accounts. I recommend either applying for cards over time throughout the year or even applying for a couple of cards in the same day/week and then backing off for awhile. Either way, you should be fine as long as you don't go crazy on the new account applications.

Credit Mix

Credit Mix is a combination of all the different types of accounts you have in your name. This includes credit cards, retail accounts, installment loans, mortgage loans, and finance company accounts. Luckily, you don't have to have one of each to score an A+ in this category. As long as you have hand dipped in a few of these, you should be good.

Obtain Your Credit Score and Report

If in order to get an understanding of where your credit falls, you'll want to obtain your FICO credit score and your credit report.

Credit Score

The first thing you will want to find out is your FICO credit score. The easiest place to get your FICO score is from the MyFICO website. You can sign up for a subscription or you can get a one-time report (recommended). Getting your report will cost, so just a heads up.

Once you pay for your report/subscription, you'll receive your credit score and a detailed credit report. It will list:

  • All FICO credit scores for Equifax, Transunion and Experian
  • Accounts listed under your name
  • Collections
  • Public Records
  • Inquiries
  • Your Personal Info

You will want to go through this report and make sure that all accounts are yours and that everything on it (good and bad) checks out. If you find that something isn't right, you can go to the bureau's website and dispute it. Each bureau has there own site:

Your credit scores across these three bureaus will not be the same. This means your credit score for Experian could be 780 while you have a 801 score with Transunion and 795 with Equifax. This is because the information that each bureau has will not usually be the exact same and because each bureau doesn't same score structure.

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Now while these scores are not going to be the same, they should at least be relatively close in value. If you have a 704 with one bureau and a 780/790 with the other two, it means there's something negative dragging the score down on the first bureau that hasn't reported to the other two. If the negative on the first bureau is legit, consider yourself lucky that it hasn't reported to the others. It's a possibility that it may at some point appear on the other bureaus, but it's also a possibility that it will not.


Credit Report

Your credit report is what lists the accounts, collections, public records, inquires, and personal info. If you grab up your FICO score through MyFICO, then this report will come with it.

If you're just looking to get your credit report only, there's plenty of places to do such. The most straightforward option is through annualcreditreport.com. You'll enter your information, follow the prompts, and have access to your credit report. This can be done one time per year through their website.

If you're looking for something more user friendly that can be used any time during the year, I recommend Credit Karma. They are a free credit report site that offers access to your credit reports for both Transunion and Equifax. They also provide credit scores for both bureaus, but these are not FICO scores. Credit Karma uses VantageScore 3.0 which is not as widely used as FICO. VantageScores can be as much as 60 to 100 points lower than what your FICO scores show. I recommend not paying the scores listed on Credit Karma any attention and just focus on the credit reports supplied by them.

Use Credit Karma for free access to your credit reports everyday.


I consider understanding what makes up your credit score to be extremely important before you dive into the world of earning points, miles, and cash back. Without knowing your score or what's on your report, you'll be taking a shot in the dark when applying for credit cards and any other kind of credit. This can hurt you in the long run due to adding unneeded inquiries to your credit report. Knowing your score will allows you to know what cards you have a chance at picking up, so that you can plan accordingly.

Updated 2019-11-20 By Robert Flowers III

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