A FICO credit score assigns a numerical value to a person’s credit risk to a bank. Scores range from 300 to a the highest possible score of 850. 65% of the credit score is linked to just two components of a person’s credit history. The first component is Credit Utilization — how much money is being borrowed? The second component is Payment History — is that money being repaid? It makes sense that two-thirds of a person’s credit score is tied to these two important behaviors.
The next fifteen percent of a person’s credit score is linked to credit history. Credit History is the length of time a person has had credit in their name. This, too, makes sense. It’s risky to lend to a “first-timer”; a person who has never had a credit card to his name, or repaid a car loan, or borrowed money for an education. Alternatively, when the credit bureaus see that a person has had experience managing their own credit, they’re more likely to give the consumer a boost.
The last twenty percent is split over the types of credit a person uses and the “newness” of their credit, the category “New Credit.” New Credit is an assessment of the (1) new credit accounts you’ve opened, (2) the types of credit for which you’ve applied, and (3) how long it’s been since you last opened an account. New Credit is a catch-all of sorts, addressing credit-related behavior which falls outside of the other category types. “New Credit,” is effected when you create a credit inquiry.