Credit Score Series - Part 2: The Five Ingredients of a Strong FICO® Score

This post is part of the FinanciFI Credit Score Series. Now that you know what a FICO® Score is, let’s look at the five key ingredients that make it up- and how each one affects your overall credit health. (Missed the first post? Read “Understanding the FICO® Credit Score” here.)

In my last post, I introduced the FICO® Score- what it is, why it matters, and how it affects everything from your loan interest rates to your car insurance premiums. Now that you understand what the score is, let’s dig into how it’s calculated. Because once you understand the ingredients, you can start tweaking the recipe in your favor. Your FICO® Score is made up of five main ingredients, or components, each contributing a different percentage to your overall score:

Component	Weight	Description
Payment History	35%	How reliably you pay your bills
Amounts Owed	30%	How much of your available credit you’re using
Length of Credit History	15%	How long you’ve been managing credit
Credit Mix	10%	The variety of your credit accounts
New Credit	10%	How recently- and how often- you’ve opened new accounts

Let’s walk through each one, what it measures, and how to improve it.

1. Payment History (35%) - Your Track Record Matters Most

It makes sense that the biggest piece of your credit score is based on whether or not you’ve paid your past debts on time. Lenders see your payment history as a direct indicator of how likely you are to pay future debts.

Every loan or line of credit- credit cards, car loans, student loans, mortgages- gets tracked for on-time payments. (Note: Sometimes landlords or other entities provide payment history to the bureaus, even if it isn’t a “loan.”) If you consistently pay your debts when they’re due, your score improves. If you miss payments, your score can take a noticeable hit.

Here’s how the FICO® model looks at late payments:

• How late the payment was (30, 60, 90, or 120+ days)

• How much you owed at the time

• How recent the missed payment was

  
  

A single 30-day late payment on a small balance won’t hurt you nearly as much as a 90-day late payment on a large loan. And the older a delinquency is, the less it affects your score. So, if you had a rough patch five years ago, it’s not weighing you down nearly as much as it used to.

More serious actions- like charge-offs or bankruptcies- have a larger and longer-lasting impact. Charge-offs remain on your report for up to seven years, and bankruptcies can stay for seven to ten years, depending on the type. If you’re ever considering bankruptcy, talk to multiple professionals before making that decision. Sometimes there are better alternatives.

Takeaway: Pay everything on time, every time. Even one missed payment can follow you for years, but good habits rebuild your score over time, too.

2. Amounts Owed (30%) - Credit Utilization Counts

You might assume this category is about how much total debt you have. In reality, the FICO® Score looks more closely at your credit utilization- that’s the percentage of your available credit you’re actually using.

Let’s say you have a single credit card with a $7,500 limit and a balance of $7,250. That’s a 97% utilization rate- and it signals high risk to lenders. But if you have three cards with a combined limit of $30,000 and a total balance of $7,250, your utilization is just 24%. It’s the same amount of debt, but it sends a very different message to lenders.

While FICO® doesn’t share its exact formula, experts agree:

• Under 30% utilization is good

• Around 10% is ideal

• 0% (never using credit or paying it off immediately) can actually hurt your score, since lenders can’t see you managing credit at all

It’s also why I often recommend keeping older cards open even if you don’t use them often. Closing an account reduces your available credit, which can make your utilization ratio spike overnight.

Takeaway: Aim to use 10% to 30% of your available credit. Consider paying down balances and/or requesting credit limit increases.

3. Length of Credit History (15%) - Time Builds Trust

This component looks at three things:

1. How long your oldest and newest accounts have been open

2. The average age of all your accounts

3. How long it has been since each account was last used

A longer track record gives lenders more confidence in your financial habits. It’s one reason teens and young adults often struggle to build credit- they don’t have a long enough history yet.

If you’re new to credit, there are a few ways to start (see the next post in this series for more details):

• Become an authorized user on a parent or family member’s account (if they have a good payment history on that loan).

• Open a secured credit card with a small deposit.

• Have a family member co-sign your first loan.

Once you have open accounts, keep your oldest ones active. Even if you don’t use your first credit card anymore, consider keeping it open and using it occasionally for small purchases.

Takeaway: Time helps your credit. The longer you manage accounts responsibly, the more this component improves.

4. Credit Mix (10%) - Showing You Can Handle Variety

The FICO® Score likes to see that you can manage different types of debt responsibly. The two main categories are:

• Revolving accounts - credit cards or home equity lines of credit (HELOCs), where you can borrow repeatedly up to a pre-determined limit.

• Installment loans - mortgages, auto loans, or student loans, where you borrow a lump sum and pay it down over time.

Having a mix of both types (and keeping them in good standing) shows lenders that you can handle various financial responsibilities. But don’t go out and open a loan just for the sake of improving your mix- it’s not worth the potential hit in other areas.

Takeaway: If you already have a healthy mix of accounts, great. If not, focus on responsibly managing what you do have- your mix will naturally diversify as your financial life grows.

5. New Credit (10%) - Don’t Open Too Much, Too Fast

Every time you apply for a new loan or credit card, the lender runs a hard inquiry on your credit report. Too many inquiries in a short period can make it look like you’re in financial trouble or desperate for credit. However, don’t let this prevent you from “rate shopping” - applying for a loan at 2-3 different institutions to see who offers you the best interest rates. The algorithm knows that this is common, so 2-3 applications for the same loan type in the same time period is not a significant concern for lenders.

The FICO® model also considers:

• How many new accounts you’ve opened recently

• How close together those accounts were opened

• The types of new accounts (revolving vs. installment)

That said, not all new credit is bad. Opening a new account strategically- like a high-limit credit card you use responsibly- can actually improve your utilization ratio and overall score.

You might have noticed something called a soft inquiry if you pulled and reviewed your credit report. This shows which companies have requested information about your credit history, often without you being aware of it. Unlike a hard inquiry which you initiate as the consumer, soft inquiries are done by companies for their own purposes, such as pre-approving you for a credit card offer they want to send in the mail. The soft inquiries do appear on your credit report but do not affect your credit score.

Takeaway: Space out new applications, and open new accounts only when they serve a clear purpose in your financial plan.

How the Ingredients Works Together

The five components of your FICO® score are deeply interconnected. For example, opening a new account can impact your Length of Credit History, Amounts Owed, Credit Mix, and New Credit categories- sometimes in opposite ways.

That’s why your score can fluctuate slightly from month to month. It’s normal! The goal isn’t perfection- it’s consistency. Small, steady improvements add up over time.

In Summary

Here’s the quick recap:

• Payment History: Always pay on time.

• Amounts Owed: Keep your utilization in the 10% to 30% range.

• Length of Credit History: Keep old accounts open when possible.

• Credit Mix: Manage different account types responsibly.

• New Credit: Be intentional with new applications.

Your FICO® Score is essentially a living snapshot of your financial habits. When you understand how it is calculated, you can take charge of it- one decision at a time.

In the next post, we’ll talk about how to build credit from scratch, even if you don’t have any credit history yet. Whether you’re helping a teenager, a young adult, or starting fresh yourself, you’ll learn practical steps to get started on solid footing.

Understanding your credit score is powerful- but putting that knowledge into action is where real change happens. If you’re ready to stop guessing and start building financial confidence, let’s talk. Schedule a free Q&A call to start the financial coaching process.