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What affects your credit score?

5 factors that affect your credit score

Profile picture of Emma Simon
by Emma Simon ConsumerAffairs Research Team
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From buying a car to taking out a loan, your credit score affects the majority of the financial decisions throughout your lifetime. Reap the benefits of a good credit score and set yourself up for success by finding out what factors impact your credit score the most.

How is credit score calculated?

Five main factors make up your credit score:

1. Payment history

Your payment history makes the most significant impact on your credit score in both credit scoring models (VantageScore and FICO) and counts for about 35% of your overall score.

Your payment history counts your past payments on mortgages, credit card bills and loans. Lenders emphasize this factor because it demonstrates your reliability, so when it comes to what has the biggest impact on your credit score, items like multiple late payments or missing payments can create a negative impact on how a lender perceives your creditworthiness.

How to optimize your payment history: Make on-time payments, even if it means just paying the minimum amount due. This builds your reliability and shows creditors that you’re responsible with money.

2. Amount of debt/credit usage/credit utilization

The amount of debt you have, also called credit utilization ratio, makes up 30% of your credit score. A credit utilization ratio compares your credit limit (the ceiling of what lenders allow you to borrow) with the amount of credit you’ve actually used.

Student loans, credit cards, car loans and mortgages fall into this category, and the more debt you have, the more likely you are to be considered a high-risk borrower.

How to optimize your credit utilization ratio: Have a healthy relationship with credit. Don’t borrow more than necessary and try to keep your credit utilization ratio below 30%.

3. Credit history age/length of credit history

Credit history makes up 15% of your credit score. It’s based on the age and activity of your credit accounts and is basically the combined average of all of your accounts.

How to optimize your credit history: Commit to your accounts for the long haul and try to have both revolving and installment accounts on your credit history.

4. Type of credit on your report/credit mix and types

The types of credit you have, or your “credit mix,” make up 10% of your credit score. Your credit mix is exactly what it sounds like: a look at the kinds of credit accounts you have. The two kinds of credit accounts that impact credit scores the most are:

  • Revolving accounts: These types of accounts don’t have a predetermined amount due or require you to pay in full each month. The best example of a revolving account is your credit card.
  • Installment loans: These types of accounts have fixed payments for a fixed amount of time, like student loans, personal loans or car loans.

How to optimize your credit mix: Having both kinds of accounts on your credit report makes for the healthiest credit score. But since your types of credit only constitute 10% of your final score, not having one of them won’t critically impact it.

5. Number of inquiries/recent credit

Rounding out the final 10%, the fifth factor that determines your credit score is your recent credit, which is a compilation of hard credit checks or inquiries that you’ve incurred over the past 12 months.

How to optimize your recent credit: Avoid filling out too many applications that require a hard credit check within a short span of time.

credit score factors pie chart

4 other credit score factors

Besides the five major factors that impact your score, some unexpected things can negatively affect it.

  1. Reporting errors from data entry mistakes or identity theft can lower your credit score. Monitor your credit history and credit reports for unusual activity to avoid becoming a victim of identity theft.
  2. Failing to pay your taxes may lead to the government filing a Notice of Federal Tax Lien, which can affect your credit score.
  3. Requesting a credit limit increase from your bank usually requires banks or creditors to do a hard credit check. This can slightly affect your credit score, but if it helps you achieve a better credit utilization ratio, requesting a credit limit increase can eventually raise your credit score.
  4. Using above 30% of credit available to you is generally a red flag to creditors that you might be too dependent on credit.

Factors that affect your FICO and VantageScore credit scores differ slightly. Each considers certain factors to carry more weight than others.

What affects your FICO score?

Your FICO score primarily considers your payment history and the total amount of debt you have. It puts the least emphasis on new lines of credit and account types (or “credit mix”). The length of your credit history also plays a factor.

What affects your VantageScore?

Your VantageScore credit score heavily considers payment history, followed by how long you’ve had your accounts and your credit mix. Having a good combination of account types, such as a mortgage loan, auto loan and credit cards, shows diversity in credit usage and can positively impact your score. On the flip side, recent inquiries to your credit have less influence on your overall VantageScore credit score.

One of the most significant differences between VantageScore and FICO is how influential available credit is on your score. The VantageScore ranks “available credit” as one of the least influential factors, but FICO deems it one of the most important — available credit makes up as much as 30% of your FICO score.

3 factors that don’t affect your credit score

You might think that income and employment status would affect your credit score, but they don’t directly.

  1. Income. While the amount of money you make is significant, it doesn’t directly affect your credit score. Income affects how much you’re eligible to borrow from lenders, but they typically view it as a separate entity from your credit score.
  2. Employment status. Your employment information and status might appear on your credit report, but only because it’s used to confirm your identity or any recent loan applications you’ve filled out.
  3. Checking your credit score. Your bank or a free credit service can help you check your credit score, which doesn’t have any negative consequences.

Your income, employment status and credit score all affect your eligibility for loans, so having a steady income and staying employed help you qualify for better terms and a larger amount.

Why credit history is important

Establishing a good credit history is critical to building a secure financial future. Be sure to make on-time payments and maintain a low credit utilization ratio — two-thirds of your credit score is made up of these two factors.

Knowing what determines your credit score and why your credit history matters enables you to find areas in your credit profile for improvement or get the assistance of a professional credit counselor.

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Profile picture of Emma Simon
by Emma Simon ConsumerAffairs Research Team

As a member of the ConsumerAffairs research team, Emma Simon is dedicated to creating accurate and valuable content that helps consumers make difficult decisions.