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The five things that impact your credit score the most

Your credit score is made up of several factors, everything from how often you pay your bills on time to how much you owe on your credit cards. And some things will impact your credit score more than others.

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    Signs stand outside new townhouses in Houston (Feb. 16, 2016). Your mix of credit cards, retail accounts, installment loans, and mortgage loans makes up 10% of your credit score, and it's typically better to have a diversity of credit types.
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You know that your FICO credit score is a key number. Mortgage lenders will use it to determine whether you qualify for a home loan. They'll also use it to determine how high of an interest rate you'll pay on that loan.

You should know, too, that lenders consider a FICO score of 740 or higher to be a strong one, and that scores under 640 are generally considered weak.

But do you know exactly what makes up your all-important FICO credit score?

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It isn't surprising if you don't. Your credit score is made up of several factors, everything from how often you pay your bills on time to how much you owe on your credit cards.

1. Your Payment History

Nothing is more important to your FICO score than your payment history, and this is according to the team at Fair Isaac Corporation, the company that created the FICO score. According to the myFICO website, your payment history makes up 35% of your credit score.

Your FICO score will drop — often by 100 points or more — if you have late payments on your credit cards, retail accounts, car loans, and mortgage loans. Missed payments remain on your credit reports for seven years, but decrease in importance as time moves on.

Your payment history also includes any bankruptcies — which stay on your credit reports for seven to 10 years — and foreclosures, which remain on your reports for seven years.

If you have a good record of no missed payments on all or most of your credit accounts, your FICO score will tend to be higher, though other factors could negate your solid payment history.

2. The Amount You Owe

Owing a lot of money on credit cards and on loans can reduce your credit score. According to myFICO, the money you owe makes up 30% of your credit score.

But owing a lot doesn't necessarily cause your credit score to plummet. What is more important is how much of your available credit you are using. Say you have $10,000 worth of available credit on your credit cards. If you are using $8,000 worth of this credit, your score will be lower than if you are only using $2,000 of it. That's why financial experts recommend that you never close an open credit card account, even if you've paid it off and are not using it.

3. Length of Your Credit History

How long you've been using credit is another important factor in your credit score, making up 15% of it, according to myFICO. In general, the longer your credit history, the better it is for your credit score.

Your credit history includes the age of your oldest account, the age of your newest account, and the average age of all of your accounts. Your history also includes the length of time since you've used specific accounts.

4. Your Credit Mix

Your mix of credit cards, retail accounts, installment loans, and mortgage loans makes up 10% of your credit score. In general, it's better if you have a diverse mix of credit types. But, according to myFICO, your credit mix is rarely a key factor in calculating your credit score. This factor is most important for consumers who have more limited credit histories and less information on their credit reports.

5. New Credit

Your newest credit accounts — including credit cards, mortgage loans, and auto loans — make up 10% of your FICO score. The researchers at myFICO say that consumers who open several credit accounts in a short period of time are a greater risk to default on their loans or miss credit card payments. Because of this, the FICO scores of consumers who have opened too many new credit accounts could dip, especially if these consumers have a short credit history.

This article is from Dan Rafter of Wise Bread, an award-winning personal finance and credit card comparison website. This article first appeared in Wise Bread.

The Christian Science Monitor has assembled a diverse group of the best personal finance bloggers out there. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the bloggers' own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. To add or view a comment on a guest blog, please go to the blogger's own site by clicking on the link in the blog description box above.

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