Credit 101: What Are the 5 Factors That Affect Your Credit Score?

Part of our Finance Fundamentals series

Whether it helps you qualify for a new credit card or secure the best interest rate on your mortgage, your credit score has a big impact on your finances. 

While there are a few different types of credit scores, the one you’re most likely familiar with (and the one that’s most widely used) is the FICO Score, which ranges from 300 to 850. Anything less than 580 is considered “poor,” and “good” scores start around 670.  

But what are the five factors that affect your credit score? Here’s what to know about each of them, and how heavily they are weighted into your score. 

Your payment history (35 percent) 

You probably already know that paying your bill on time each month is a good credit card habit to build. But did you know that if you miss a bill payment it could lead to a drop in your score? 

If you miss your due date by only a day or two, the damage will likely be minimal, although you may be charged a late fee (many companies won’t report a late payment to a credit bureau until it’s 30 days late). Plus, when deciding how missed payments will affect your score, FICO considers other factors such as how late you were, how much was owed, how recently you missed the deadline and how many times you’ve been late in the past.  

If you’re so late with a payment that it goes to collections, expect an even bigger ding to your score. Because you’re not always notified when this happens, it's a good idea to regularly check your credit report, which you can do by requesting a free copy from each of the three major credit bureaus (Equifax, Experian and TransUnion). 

Amounts owed (30 percent) 

How much you owe across all your credit accounts also has a significant impact on your credit score. The same goes for your credit utilization, or the percentage of your available credit that you’re actually using. 

Your goal should be to keep your credit usage at 30 percent or less. So if your credit cards have a total combined limit of $10,000, you shouldn’t carry a balance of more than $3,000 in a given month (and the lower, the better). If lenders see you’re close to maxing out lines of credit, they may view you as a risk for not making future payments. So it’s a good idea to stay under 30 percent for individual cards as well. 

Length of your credit history (15 percent) 

Your credit history factors in the length of your oldest credit account, your newest credit account and the average age of all your accounts combined so lenders know how long you’ve been responsibly managing your credit. In most cases, the longer your credit history, the higher your score. So if you’re thinking of canceling a card you’ve had for a long time, you may want to think twice. 

Your credit mix (10 percent) 

Holding a variety of credit accounts and loans (credit cards, student loans, auto loans, a mortgage, etc.) can help your score because it shows lenders you can handle different types of borrowing. That said, you shouldn’t open an account you don’t need or intend to use because doing so could trigger a hard inquiry (more on this below). 

Any new credit (10 percent) 

Opening several new lines of credit in a short period of time can signal to lenders that you may be financially unstable. If it looks like you’re relying on credit and loans too much, this could have a negative impact on your score. 

Each time you open a new account, you’ll trigger a hard inquiry (when a lender pulls your credit report to evaluate you as a borrower) on your credit, and that can lower your score. A soft inquiry doesn’t affect your score and occurs when someone who isn’t a lender (including you) checks your credit report. 

Bottom line: There’s a lot that goes into your credit score. And because it can fluctuate frequently, it’s important to keep tabs on it regularly. Also, be on the lookout for any errors on your report, which can hurt your score unnecessarily. If you do notice a mistake (which does happen), you can dispute the error with the bureau in question. 

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