What Affects Your Credit Score? 5 Credit Score Factors

Credit scores can seem unpredictable – changing frequently. It’s not magic; it’s math and a bit of mystery. If you’ve ever been confused by your credit score, you’re not alone. Read along to understand those numbers and learn how you can take control.

We’re going over exactly what affects your credit score and the different credit score factors that make up your credit health – including what factor has the biggest impact on a credit score.

5 Credit score factors

Now, let’s dive into the top five factors that affect credit scores and influence those all-important numbers. Understanding these can help you make smarter financial decisions and keep your score in check.

1. Payment history (35%)

Your payment history is the bedrock of your credit score, accounting for a hefty 35%. Think of it as your report card for credit responsibility. Late payments, defaults, and bankruptcies are red marks that can haunt your credit profile for years.

Some of the account types considered for credit history could include credit cards (Visa, MasterCard, American Express, Discover, etc.), retail accounts, installment loans (loans where you make regular payments, like car loans), finance company accounts, and mortgage loans. 

Each missed payment signals to lenders that you might be a risky bet. 

But consistently paying your bills on time can work wonders for your score. It shows lenders that you’re reliable and capable of managing debt responsibly. Even a single missed payment can knock your score down significantly, so punctuality is key.

In essence, your payment history reflects your reliability in repaying debts. It’s the most significant factor, so make it a priority to stay on top of your payments. After all, a spotless payment record is the quickest way to a stellar credit score.

2. Amounts owed (30%)

The amounts you owe contribute to 30% of your credit score. This factor isn’t just about how much debt you have, but also how you manage it. The credit utilization ratio plays a crucial role here; it’s the percentage of the available credit you’re currently using. For instance, if you have a $10,000 credit limit and owe $2,000, your utilization ratio is 20%.

Keeping your balances low relative to your credit limits can help boost your score. High balances, conversely, can indicate overreliance on credit, which is a red flag for lenders. Aim to keep your credit utilization below 30%, and even lower if possible, for the best impact on your score.

Managing your debt wisely by not maxing out your cards and paying down balances is essential. Remember, it’s not just about the total debt but how you handle it that counts.

3. Length of credit history (15%)

The length of your credit history makes up 15% of your credit score. Length of credit history describes the age of the accounts on your credit reports with the three major credit bureaus: Equifax, TransUnion, and Experian.  A longer history provides a clearer picture of your financial behavior over time. This includes the age of your oldest account, your newest account, and the average age of all your accounts.

Older accounts can positively impact your score because they demonstrate long-term credit management. Even if you no longer use an old credit card, keeping it open can be beneficial. Closing old accounts can shorten your credit history and potentially lower your score.

A mix of older and newer accounts shows lenders you have experience managing credit over the long haul. The longer your credit history, the more data there is to support your creditworthiness. 

4. Credit mix (10%)

Credit mix refers to the variety of credit accounts you have, making up 10% of your score. Lenders like to see that you can handle different types of credit responsibly. This includes credit cards, retail accounts, installment loans, finance company accounts, and mortgage loans.

A diverse credit portfolio can boost your score because it shows you can manage various forms of credit. However, it’s not necessary to open new accounts just to diversify. Instead, focus on maintaining a good mix of accounts that naturally fit your financial needs.

Having a range of credit types can positively impact your score, but always manage what you have wisely. It’s about quality and responsible management rather than quantity.

5. New credit (10%)

Opening several new credit accounts quickly can lower your score, making up 10% of the total calculation. New accounts can suggest higher risk, especially if you don’t have a long credit history. Each new account typically involves a hard inquiry, which can ding your score temporarily.

It’s essential to be mindful of how often you apply for new credit. Too many inquiries in a short period can make you look desperate for credit or like you’re trying to live beyond your means.

Instead, apply for new credit sparingly and only when necessary. This will avoid unnecessary hard inquiries and maintain a stable credit profile. Patience and strategic planning are key to keeping this aspect of your credit score in good shape.

What is not included in a credit report?

While the above five factors affect your credit score, other personal and financial details have no bearing. These include:

1. Income/salary: This information isn’t directly related to creditworthiness. Lenders usually request this separately as part of their application process.

2. Bank account balances: These fluctuate frequently and aren’t indicators of long-term financial behavior. Credit reports focus on credit accounts rather than liquid assets.

3. Investment accounts: These aren’t directly tied to credit use like bank balances. Your investment portfolio doesn’t reflect your ability to manage debt.

4. Criminal records: Most criminal information is considered irrelevant to creditworthiness. However, some financial crimes might appear if they involve court judgments.

5. Medical history: This is protected by privacy laws like HIPAA in the US. Therefore, it has no impact on your credit score.

6. Utility payments: These aren’t credit accounts, though severe delinquencies might be reported. Typically, only unpaid bills sent to collections affect your credit.

7. Rent payments: Traditionally not reported, though some services now allow landlords to report this data. Without these services, rent payments do not appear on your credit report.

8. Education history: Education history is not directly related to credit use or repayment behavior. Credit reports do not include information about your educational background.

9. Race, religion, and political affiliations are excluded to prevent discrimination in lending. Credit scoring models are designed to be unbiased regarding these personal details.

10. Cash/debit purchases: These don’t involve credit, so they’re irrelevant to credit reports. Credit reports only track transactions involving borrowed money.

Mastering Your Credit Score: Key Takeaways 

Understanding what affects your credit score and the five key credit score factors — payment history, amounts owed, length of credit history, credit mix, and new credit — is crucial to managing your credit score effectively.

Each factor plays a distinct role in shaping your financial profile, but payment history and amounts owed can be the most influential. 

By staying on top of these elements, you can maintain a healthy credit score and improve your financial future. Remember, knowledge is power when it comes to your creditworthiness.

FAQs

What factor has the biggest impact on a credit score?

Payment history has the biggest impact on your credit score, accounting for 35% of the total score. Consistently making on-time payments is essential for maintaining a high credit score.

Why is your amount owed considered when determining your credit score?

Your amount owed is considered because it reflects your overall debt and your credit utilization ratio. High balances can signal to lenders that you may be overextended and pose a higher risk.

How can I get my credit report for free?

Through AnnualCreditReport.com, you can get your credit report for free annually from each of the three major credit bureaus — Equifax, Experian, and TransUnion. This allows you to monitor your credit and catch any discrepancies.