Establishing good credit is an important factor in your financial wellness, but sometimes it feels like your credit score fluctuates for no reason at all. Here’s how your score is calculated.

Factor #1: Payment History

This shows how you’ve paid your accounts, including whether they’ve been paid on time and in full.

Factor #2: Credit Utilization

This is the total amount you currently owe divided by your credit limit. In theory, using a large portion of your available credit means you’re more likely to be overextended and miss payments.

Factor #3: Length of Credit History

Generally, longer lengths of credit history lead to higher scores, so keep your accounts open whenever possible.

Factor #4: Types of Credit

This includes credit cards, retail accounts, mortgage loans, and more. The more you can vary the types of credit you have, the better.

Factor #5: Recent Activity

Credit inquiries and opening new accounts can have an adverse effect on your credit score. It’s best to avoid opening too many accounts within a short amount of time.

Implement and Improve

By knowing the factors that make up your credit score and how you can implement these tips, you should start to see improvements over time.