Understanding how Credit Scoring works
Trying to understand and manage your credit score is similar to solving a Rubik's Cube. Sometimes an action you take has a result you didn't want. Like a Rubik's Cube, if you understand some basic principals, the puzzle can be solved, and you can easily manage and maintain an excellent credit rating. 
Before you can map your course, you need to know where you are going. Your ultimate goal is "perfect credit". But what is perfect credit? Here is a chart of various credit ratings and how they stack up against each other. This not only shows you where you are going, but where you are along the path.
730 - 830 = A+ or "platinum/perfect credit rating"
680 - 729 = A or "great credit rating
640 - 679 = B or "good credit rating"
600 - 639 = C or "acceptable credit rating"
550 - 599 = D or "poor credit rating"
549 & below = E or "very poor credit rating"
Now that you know where you are and where you need to be, you need to understand how to get from here to there. Like the Rubik's cube, understanding how a move will result in the alignment of your piece will help you make the best decisions. Let's look at the makeup of the credit score itself.
Payment History - 35%
This is the single biggest factor on your score. Making payments on-time keeps your score healthy and strong. Delinquencies can have a major negative impact right away. Nothing is more important on your credit than your payment history. Missing a $10 payment will have the same negative impact as missing a $1,000 payment. So make all of your payments on time. 
Capacity - 30%
Capacity is the most misunderstood aspect of your credit. This refers to your available capacity, not your total borrowing capacity. If your total borrowing capacity was $15,000, and the balance of all of your credit lines totaled $12,000, you only have $3,000 in available capacity. That means you have utilized 80% of your total borrowing capacity. The optimum ratio to have is 50% or below. That means your total balances should be no more than $7,500 in this example. Having available capacity and not using it shows responsibility and self control. It shows you don't borrow money just because you have the ability to.
Length of Credit - 15%
Have you had a positive account for a long period of time? Great, it's going to have a positive impact on your credit. Newer accounts will have more weight than older accounts. So, that 4 year old credit card that has never been late won't have as much of a positive impact as your 1 year old credit card with 1 late payment. 
Recently Accumulated Debt - 10%
In the last 12-18 month's, how much debt have you incurred (or attempted to incur). How many new accounts do you have? How many inquiries have been made? Applying for too many accounts (whether approved or not approved) can have a negative impact on your credit score.
Mix of Credit - 10%
What types of credit do you have? Installment payments such as car loans, mortgages, and anything with a fixed payment can increase your score. Revolving credit such as credit cards, store credit and anything that has a balance that can change from month to month can impact this category negatively. Loans from finance companies that provide unsecured signature loans tend to have a negative impact in this category as well. 
What actions hurt your credit score? 
Missing payment, regardless of how small the amount can set you back up to 24-month's. Credit Cards at maximum capacity shows you may rely on your credit to live your daily life. Applying for too many credit accounts. Opening up numerous accounts in a short period of time. Having more revolving debt than installment payments. Closing credit cards out will lower your available capacity. Borrowing from finance companies.
What actions can you take to improve your score? 
Pay down your credit cards. Do not close credit cards because capacity will decrease. Move your revolving debt into installment debt. Continue to make payments on time. Open new accounts few and far between. Be consistent and over time acquire a solid credit history. 

Trying to understand and manage your credit score is similar to solving a Rubik's Cube. Sometimes an action you take has a result you didn't want. Like a Rubik's Cube, if you understand some basic principals, the puzzle can be solved, and you can easily manage and maintain an excellent credit rating. 

Before you can map your course, you need to know where you are going. Your ultimate goal is "perfect credit". But what is perfect credit? Here is a chart of various credit ratings and how they stack up against each other. This not only shows you where you are going, but where you are along the path.

  • 730 - 830 = A+ or "platinum/perfect credit rating"
  • 680 - 729 = A or "great credit rating"
  • 640 - 679 = B or "good credit rating"
  • 600 - 639 = C or "acceptable credit rating"
  • 550 - 599 = D or "poor credit rating"
  • 549 & below = E or "very poor credit rating"

Now that you know where you are and where you need to be, you need to understand how to get from here to there. Like the Rubik's cube, understanding how a move will result in the alignment of your piece will help you make the best decisions. Let's look at the makeup of the credit score itself.

Payment History - 35%

This is the single biggest factor on your score. Making payments on-time keeps your score healthy and strong. Delinquencies can have a major negative impact right away. Nothing is more important on your credit than your payment history. Missing a $10 payment will have the same negative impact as missing a $1,000 payment. So make all of your payments on time. 

Capacity - 30%

Capacity is the most misunderstood aspect of your credit. This refers to your available capacity, not your total borrowing capacity. If your total borrowing capacity was $15,000, and the balance of all of your credit lines totaled $12,000, you only have $3,000 in available capacity. That means you have utilized 80% of your total borrowing capacity. The optimum ratio to have is 50% or below. That means your total balances should be no more than $7,500 in this example. Having available capacity and not using it shows responsibility and self control. It shows you don't borrow money just because you have the ability to.

Length of Credit - 15%

Have you had a positive account for a long period of time? Great, it's going to have a positive impact on your credit. Newer accounts will have more weight than older accounts. So, that 4 year old credit card that has never been late won't have as much of a positive impact as your 1 year old credit card with 1 late payment. 

Recently Accumulated Debt - 10%

In the last 12-18 month's, how much debt have you incurred (or attempted to incur). How many new accounts do you have? How many inquiries have been made? Applying for too many accounts (whether approved or not approved) can have a negative impact on your credit score.

Mix of Credit - 10%

What types of credit do you have? Installment payments such as car loans, mortgages, and anything with a fixed payment can increase your score. Revolving credit such as credit cards, store credit and anything that has a balance that can change from month to month can impact this category negatively. Loans from finance companies that provide unsecured signature loans tend to have a negative impact in this category as well. 

What actions hurt your credit score? 

Missing payment, regardless of how small the amount can set you back up to 24-month's. Credit Cards at maximum capacity shows you may rely on your credit to live your daily life. Applying for too many credit accounts. Opening up numerous accounts in a short period of time. Having more revolving debt than installment payments. Closing credit cards out will lower your available capacity. Borrowing from finance companies.

What actions can you take to improve your score?

 Pay down your credit cards. Do not close credit cards because capacity will decrease. Move your revolving debt into installment debt. Continue to make payments on time. Open new accounts few and far between. Be consistent and over time acquire a solid credit history.