Deconstructed: The Simple Math Behind Your Credit Score

1. Payment Habits Say It All: When it comes to your credit score, your payment history is the most important element. This is a record of whether you have consistently paid your bills, loans, and credit card dues on time. Lenders look for a pattern of dependability.
Action: Set up auto-debits or reminders. Even one missed payment can significantly lower your score and remain on your record for years.

2. Credit Utilisation Ratio (The 30% Rule): This is the percentage that shows how much of your available credit limit you are using. High usage suggests you are over-reliant on borrowing, which signals risk.
Action: Experts recommend keeping your usage below 30% of your total available credit. If your ratio is too high and will hurt your score. Keep it low to show control.

3. Length of Credit History: The amount of time you have been using credit responsibly matters. A longer history provides more data and generally makes you look more reliable to lenders.
Action: Avoid closing your oldest credit account. Even if you rarely use it, the age of that account adds valuable weight to your overall credit profile.

4. Your Credit Mix: Credit agencies also look at the types of credit you manage: revolving credit and installment credit.
Action: A balanced mix demonstrates that you can handle different repayment structures. However, do not take on unnecessary debt just to diversify your accounts; focus on maintaining the accounts you already have.

5. Total Number of Accounts
While having multiple accounts is fine, opening too many new credit accounts in a short period can signal to lenders that you are suddenly taking on too much debt, which can negatively affect your score.