How Your Credit Score Works (and What Really Matters)

Credit education is important to start early — and just as important to understand as an adult. Whether you’re just beginning your credit journey or rebuilding after setbacks, knowing how your credit score is calculated can help you reach major milestones like buying a home or gaining more financial flexibility. Below are the four key elements behind your credit score, along with quick tips you can start using today.

This has the biggest impact on your credit score. Your payment history shows whether you pay your bills both on time and consistently, which signals financial responsibility to lenders.

• One small, well-managed account beats many unused or late ones
• Automatic payments help prevent accidental slips

 

This commonly overlooked factor looks at your credit card balances compared to your credit limits. A good rule of thumb is to keep this ratio below 30%. Under 10% is excellent, while going over 30% can cause your score to drop quickly.

• Avoid closing old cards (that shrinks available credit)
• Ask for credit limit increases without increasing spending

 

As the name suggests, this factor takes time. It considers the age of your oldest account, the average age of all your accounts, and your payment consistency. This factor values stability over short-term improvement.

• Keep older accounts open (even if you rarely use them)
• Avoid frequent opening/closing of accounts

 

Credit mix is a supporting factor — it’s not worth opening new accounts just to add variety. It helps to show you can manage different repayment structures.
Different types of credit can include:

• Credit mix naturally improves over time with life’s milestones
• If rebuilding, one revolving account and one installment loan (when needed) is enough

 

Understanding your credit score is only part of the equation — monitoring it is just as important. With rising fraud activity and increasingly sophisticated scams, staying aware of changes can help you act quickly. Take advantage of free credit monitoring tools, like those available in the First Mid App, to track your score, account activity, and tools like your debt-to-income ratio.

Monitoring and understanding what impacts your credit score —along with staying aware of recent changes in credit scoring — helps you take control of your credit health and prepare for major financial milestones, like buying a home. If homeownership is on your horizon, explore our guide on how to know if you’re financially prepared to buy a home.