In Part 1 I covered the basics of credit and gave you a clearer understanding of what a credit score is and the impact it can have on all facets of your life. Now I will cover how the score works, what impacts it, and what doesn’t. Your 3 digit score is made up from activity in 5 different areas, those areas and their respective weight on your score are:


  1. How you pay – 35%

  2. Capacity – 30%

  3. Length of Credit – 15%

  4. Accumulation – 10%

  5. Mix – 10%


  • How you pay, or payment history, is simply that – a history. Your credit score will go up or down depending on how you have paid on the accounts on your credit report. Payments will show as late if they are paid 30 days or more after the due date.  Payment history will also include any collections and court judgements including bankruptcy.

  • Capacity is the amount of balances that you have as compared to the total available credit you have. Capacity is one of the reasons that not having a credit card can hurt your credit, if you have no credit cards, you have no capacity. This will apply to credit cards and lines of credit. The lower your capacity, the lower your credit score will be. The higher your capacity, the higher your credit score will be.  This is why one of the easiest ways to improve your credit is to pay down credit card balances.

Let me give you an example of what capacity is and how it can impact your score: If you have a credit card with a $1000 credit limit and a balance on the card of $500 you will have 50% capacity. If this card was paid down to a $0 balance, the person’s credit score would go up by as many as 50 points. If this card was maxed out to a $1000 balance, the person’s credit score would go down by as much as 50 points.



  • Length of credit is the amount of time that you have had credit. The biggest impact to your score is your oldest account, or trade, and the average age of all other trades that you have. To keep your score as high as possible, do not close your oldest trade, and do not open a lot of new trades.

  • Accumulation takes into account how much new credit you have added in the last 18 months, and how much you are trying to get credit in the last 2 years. Every time you authorize your credit to be pulled for new credit it reflects on your credit and will show for 2 years. Prescreen offers where you have not asked for new credit do not count against your score.

  • Mix of credit is looking at the amount of open credit you have in 3 areas: Revolving (credit cards), Installment (closed end loans, car loans), and Mortgage (purchases, home equities, etc.) Think of your mix as cholesterol. Installment and Mortgage trades are good cholesterol, revolving is bad cholesterol. You want to have your bad cholesterol as low as possible and have good cholesterol as well. The optimal mix of credit is a mortgage, a car loan or two and a credit card with low/no balance.
So, now that you have a detailed breakdown of how things affect your credit, let me expand a little more for you. If you pay anyone on your credit 30 days or more late, you will lose about 60 points. The credit score will drop regardless of what the payment was for. A late payment of $10 to a credit card affects your score the same as a late car payment of $200 or a late mortgage payment of $1000. This is why it is extremely important to make all payments on time, or as close as possible. Remember that 30 days late is when your credit will actually be impacted. Here are some things that do not affect your credit score:

  1. Age

  2. Sex

  3. Employer/Job

  4. Address

  5. Religion

  6. Race/Color

  7. Most utilities do not report to credit unless you go to collections, so phone bills, cable bills, insurance bills do not give you positive credit or negative credit unless they go to a collections status.
My advice to everyone reading this is to make sure you have a credit card with a decent credit line. Use it once a month for gas, have it set up to payoff in full monthly from your savings/checking account. This will mean that you pay no interest and you keep the card active to avoid possible dormant fees from the card issuer. Make sure you also have a car loan or personal loan to keep a good mix in your credit. The higher you can keep your score, the less you will have to pay for cars and a house in the future. I will explain that in more detail in Part 3. Also,don’t forget about our Friend Raiser!  We extended it to April 6th, which is tomorrow! Make sure you invite as many friends as possible and then tell us who you invited by leaving a comment on our blog with your friend’s names!

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