Credit scores are an indicator of your level of credit risk. Lenders, landlords and even some employers use your credit score as a predictor of whether you'll be able to handle new responsibilities. Therefore, it's important to know what elements make up your score.
Payments
Whether you make on-time payments makes up 35 percent of your credit score, according to Smart Money. Because this part of your score accounts for such a large chunk, late payments are devastating to your credit. A single payment that is more than 30 days late may damage your credit score by as much as 110 points. Set up automatic bill payments to maintain a good credit rating.
Debt Utilization
The amount of debt you have and the way you're using your credit constitute 30 percent of your score. Your debt utilization ratio is the amount of debt you're using in proportion to the amount of credit available to you. The Better Business Bureau recommends keeping your balances to 25 percent or less of your credit limits. It's vital to adhere to this guideline throughout the month rather than spending up on your credit cards and paying them off at the end of each month; your creditors could report to the credit bureaus at any time. Keep in mind that if you close an account, you negatively impact your debt utilization ratio.
Credit History
The length of time you've had your accounts open constitute 15 percent of your credit score. In this area, those nearing retirement usually fare better than someone fresh out of college. To keep your credit score as high as possible, it's important to stay active on your oldest accounts, using them at least once every six months and paying off the balances in full. If you are thinking of closing accounts, make sure to keep the oldest ones open to minimize the effect on your credit score.
Credit Expansion
Are you obtaining new credit -- but not too much of it? You need new credit to keep your credit score high, but applying for too much new credit at once signals, rightly or wrongly, that you're in desperate need of money, which drops your score. Open new accounts over time to prove your ability to responsibly meet your financial obligations and you'll keep your score up. This aspect of your credit makes up 10 percent of your score.
Diversity of Credit
The final 10 percent of your score relies on the diversity of your credit. To make the most of this category, you need to have both revolving and installment loans. Credit cards and lines of credit are considered revolving loans because the credit is available to you even after you've paid off your balance. Mortgages, car loans and student loans are considered installment loans because you pay them off over time and then the accounts are closed. However, you need to be active on your mix of credit; simply having unused open accounts won't help your score at all.
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