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Day 1: Credit Goals

Day 2: Credit Basics

Day 3: Grab Free Credit Reports

Day 4: Grab Free Credit Scores


Week 1: Credit Knowledge

Day 5: Credit Score Calculations

Today’s Easy Financial Task: Learn how your credit score is calculated.

How to rock this task:

  • Learn how your credit score is calculated


Woot, woot! Day 5, friends!

Today’s an important day. We’re diving into the factors that affect your credit score.

In total, there are five areas of your credit history that are used to calculate your credit score. Some components are more impactful to your score than others.

What’s the purpose of this task?

In order to increase your credit score, you will need to identify the factors from your credit history that are hurting your score so you can make improvements.

So, let’s get started!

The five factors used to calculate your credit score include:

  • Payment history: 35% of your score
  • Amounts owed: 30% of your score
  • Length of credit history: 15% of your score
  • Type of debt: 10% of your score
  • Inquiries: 10% of your score


Let’s break down the importance of each one:


Payment History (35% of Your Score)

Of all of the components, this one is the most influential. Your ability to pay your current bills on time is a good indicator of whether you’ll be able to pay bills on time in the future. Late payments make you appear less creditworthy and, as a result, can do quite a bit of damage to your score.


Amounts Owed (30% of Your Score)

Amounts owed is how much debt you’re carrying. Having a high amount of debt owed could mean you’re having trouble paying your bills and is another red flag for companies measuring your creditworthiness.  

There are three key factors that go into determining your mark in the amounts owed category including your credit utilization, amounts owed on installment loans, and overall balances.

Let’s discuss each one in detail:


Credit Utilization

Your credit utilization is how much credit you’re using on revolving accounts. Revolving accounts are credit lines that you can keep a revolving balance on from month-to-month like your credit card. To calculate your utilization, you:

  • Add up the credit limits on your accounts
  • Add up the balances on your accounts
  • Divide your balance by your credit limit
  • Multiply by 100

For example, if you have a credit card limit of $1,000 and your balance is $500, you’re utilizing 50% of your available revolving credit.

Here’s another example: Say you have two credit cards and each one has a $1,000 credit limit (that’s a $2,000 credit limit in total). If one card is maxed out with a $1,000 balance and the other one has a zero balance, your credit utilization is also 50%.


Your goal is to keep utilization at 30%, but even lower is better.


How Much You Owe On Installment Loans

An installment loan is a loan that has a set amount of payments and a set loan term. Examples include your mortgage and auto loans. Having less owed on your installment loans has a positive effect on your amounts owed.


How Many Revolving Accounts You Have With Balances or Have Maxed Out

Finally, the amount of revolving accounts (i.e. credit cards) that you have with a balance, or have maxed out the credit limit, will have an impact on your mark in the amounts owed category.


Length of Credit History (15% of Your Score)

The longer your credit history the better. Your credit card history is calculated using an average.

Here’s an example: If you’ve had a mortgage for 15 years, a credit card for 10 years, and another credit card for two years, the length of your credit history equals nine years.

Keep this in mind before you close any of your accounts. Even if you pay off an account, closing it can significantly shorten your average history.

You also want to be careful of adding new accounts. From our example, you can see how the card that’s only two years old has shortened the average history length. The average credit history would be three and a half years longer without that credit card.

Installment loans are treated differently than your revolving credit (i.e. credit cards). When you pay off a loan, the account is closed and no longer appears on your credit.


Type of Debt (10% of Your Score)

We’ve touched on the many types of debt you can have so far. A few examples being, credit cards, mortgages, auto loans, and personal loans.

Having a mix of accounts that are in good standing shows that you can manage various forms of debt responsibly which can have a positive impact on your score.


Credit Inquiries (10% of Your Score)

A credit inquiry is when someone you authorize to look up your credit does a credit check. Too many credit inquiries can ding your credit score a few points and stay on your report for two years. Be cautious with who you allow to check your report.


It’s Time for Review

Now that we’ve covered the five components of your score, dig into your credit report(s) to see where you stand with each one.

Take out a highlighter or pen and note the positive and negative. We’ll circle back on how you can make improvements in the areas you circle next week.

As a supplement to the FICO score overview in this task, I’ve provided you with another awesome download from our dopetastic sponsor, MagnifyMoney. This tool goes even further into detail about how your credit score works.

Download it HERE.


That’s all for Day 5, Dream Catchers!

Tomorrow is a day to review the tasks from the last five days. Starting next week, we’re getting to WORK! This week was all about Credit Knowledge. Next week is all about Credit Improvement. Get ready to take action. 🙂

Leave a comment below or reach out to your accountability partners if you have any questions. Don’t forget to check into the Dream Catchers: LIVE RICHER group as well.


Share what you’ve learned today with your tweeps:

Today I learned how my credit score is calculated. Woot Woot! Day 5: #Liverichercredit Click To Tweet

Live richer,


P.S. Don’t forget to get your free Live Richer Challenge: Credit Edition Starter Kit. Get it HERE.
P.P.S. Here’s a copy of the Challenge Calendar. It’s a fun way to keep track of your progress.



You can also reach out to me here:

Twitter: @thebudgetnista

Instagram: @thebudgetnista

Facebook: The Budgetnista

Private Forum: Dream Catchers : LIVE RICHER


*** Need Help? Feeling Overwhelmed? Want to work with someone one-on-one to improve your credit? Netiva “The Frugal CrediTnista” is offering her renowned, full credit improvement services & consultations at a special discounted price just for Dream Catchers! Learn more and get the help you need, HERE. ***


Want to work through the Live Richer Challenge: Credit Edition in a workbook? It’s part of a bestselling series and has already hit #1 on Amazon! Get your copy below.

Thanks to our sponsor, MagnifyMoney, for today’s post. You can visit them HERE.

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The Challenge is sponsored by

  • Lois Samuels

    Learning about how my credit score is calculated was a eye opener

  • Tommi

    Learning about how credit scores are calculated was helpful. Now I’ll always be mindful to avoid mistakes that might hinder my score from being excellent.

  • Susan Holloway

    I am glad I have this information now. School loans & mortgage raise my utilization percentage. My goal is to work lowering credit card debt.

  • Cynthia M Davis Plum

    What if you don’t have none of these things? Do I really have to get a credit card to up my credit score?

  • Fay Henry Reddick

    Each day I’m learning something completely different. I am loving everything!!

  • Carol Burgess

    I really needed this …thanks

  • Michaela Cornwall

    I swear I wish I had found this group a lot earlier but as they say it’s never too late. I’m looking for improvement. Paying down debt is major for me this upcoming year.

  • Shawndolyn Hampton

    I’ve never has an issue paying on time, but my credit utilization and maxing out my revolving accounts has been an issue since I got my first card way back in 2001, and that looks just as bad. I have promised myself that I WILL fix that this year!

  • Sandra Wechsler Kolean

    So, I missed most of the week…I set aside a few hours and worked on all of week 1 in those hours and even taught my husband some of the material. He’s very impressed by your story and work (quite appreciative as well). My question is on Credit inquiries: I’ve heard of “soft and hard” credit inquiries where the soft ones do not “really” affect my score? how accurate is this? I will apologize in advance if this info is in the MagnifyMoney tool as I plan to read it over the weekend. Thanks for being awesome!!

  • Michelle McDowell

    I see that my issue is the first two. My payment history for my student loans looks a little bad because of my student loans before I started getting serious about keeping my credit looking good. And my debt amount because of said student loans. If I could get those late payments removed that would work in my favor, but I know I can’t. So now, I just move forward and do better! One step at a time.

  • Lisa

    Tiffany I think there is an error in the example under the Credit Utilization section. The formula looks to be transposed.

  • Amanda

    I’ve learned how I totally blotched my credit, because I am slow to pay AND I will run a card up shortly after receiving it. Well that was before and now I know the importance of paying on time and how it impacts my score.

  • Bridget Asante-Ansong

    My issue is not with paying on time, but my credit utilization and maxing out my revolving accounts. This is my year to fix it. Thanks for the information

  • Nyoka Michelle

    I am working on keeping my utilization low.

  • Brianna Samone

    I had no credit so I was trying to build mines so I got a secured credit card. I am new to this whole credit thing. I thought as long as you paid your credit card bill on time in full every month that you’d be good. NOPE! My credit limit is only $200 and I always spend the max or close to the max. I now found out that I’m hurting my score because my utilization rate is high. Thanks for the knowledge I am learning a lot. My goal is to buy a car and one day become a home owner.

  • sheilondaD

    Today I learned alot by reading this information. It shows a bigger picture on how creidt works and why. Now I know what I must do to increase and improve my credit habits. PAY ON TIME!

  • Janie

    Keeping utilization % low was what I was lacking in knowledge. Thank you for the valuable info! Now I know where I stand and what areas I need to work on.

  • Stacy Fredericks

    Utilization Rate was an eye opener for me. I need to get this credit under control.

  • Tesa Currie

    I learned about the five factors that affect my credit score, I had no idea that there were five factors. This is really informative. I’m glad I joined this challenge, I’ve never given my credit much thought before, I’m glad my eyes have been opened. I’m not where I want to be, but I’m getting there one day at a time.

  • Kelly Ransom

    I learned more in depth about my credit.

  • Crystal

    Learned about about the 5 areas that go into credit calculations.

  • Renae Myrie

    I learned the percentage make up of the credit score.

  • Mona Carol

    maxing out my credit cards are hurting my score since I use it as income working part time, so I am considering getting another part time job to decrease my utilization. Knowledge is power, and in all thy getting, get understanding. Thank you

  • Tara Strother

    I need to do better in the utilization component. All my cards are maxed out but Im going to get out of debt!!We will continue to encourage each other as we work diligently towards our goals.

  • Lisa Andrews

    In day five I learned how the credit score is calculated by percentage.

  • Chelle Rose Thompson

    Looked at my revolving utilization and it says that it is fair, but with the tips provided it said that having 30% utilization is the ideal rate; I have some work to do.
    And also, I’m looking at the length of credit with the FICO score it says it is poor, but reading more into it says that having a long standing account is good. So I’m kind of confused with that portion

  • Santoria Axson

    Very informative section. I definitely need to work on Credit Utilization and types of debts are areas where i need to work on improving.

  • Betty Wright

    This information is all new to me but is a huge eye opener, as the saying goes “when you know better you do better”, so I’m starting to do better as I type this. This group is a blessing to me and I’m so great full for it.

  • Angelina Jackson

    Enjoyed learning how calculate your credit score and the components of the score by percentage. Thank you

  • Nicole Garris

    I lived learning about the break down of the credit score. helps alot.