Factors that Affect Credit Score

To understand the factors that affect credit score, we must first dissect the concept of credit score.

A credit score is a number used by third parties to assess one’s creditworthiness. There are several different credit score models, and the most commonly used one is the FICO. This is a number on a scale between 300 and 850, which determines your financial trustworthiness.

According to recent statistics, the national average FICO score is 706, meaning that most Americans fall into the ‘good credit’ category.

But how exactly is the FICO score calculated? Let’s take a look at the factors considered.

Five Crucial Credit Score Factors

To generate your credit report, the FICO credit scoring model will use five major factors. Each has particular relevance (measured in percentages) to the total number.

Payment history: 35%

Your payment history makes up the biggest part of your credit score. Every lender considers this as an indicator of your previous financial responsibility.

So, ask yourself the following questions:

  • Have you paid all your bills on time?
  • If not, how late were you?
  • Do you have any charge-offs?
  • How long ago was the last negative event of this kind?

The answers may also give you the reason for any sudden credit score drop.

Amounts owed: 30%

The amount of debt you amass might affect your borrower profile. This is because every loan adds to your total monthly payments, and, at one point, this might offset your income-to-debt ratio. In this scenario, you would be unable to cover your account payables and return the money.

There are several ways in which existing debt may place you on the ‘poor’ credit score scale:

  • Owing a high amount in specific types of credit (mortgage, auto loan, etc.)
  • Having a high total amount of outstanding credit
  • Using too much of the total credit available

If neither of these describes your situation, you’re probably in a great spot credit-wise. But, while, in theory, being debt-free sounds ideal, lenders are more comfortable dealing with people who have a loan on their track record.

Credit history length: 15%

Next on our list of factors that affect credit score is the credit history length. To make an accurate estimate of your financial trustworthiness, potential lenders need to know that your financial responsibility is a long-lasting trend.

Provided that you don’t have a history of late payments, bankruptcy, etc., the longer your credit history, the better. A lot of people make the mistake of canceling a credit card they’re not using. If this is one of your oldest accounts, closing it might shorten your credit history length and hurt your credit rating.

New credit: 10%

Every time you’re applying for new funding, whether it’s revolving or installment credit, you’re slightly affecting your FICO score. Namely, from the sidelines, it seems as if you’re struggling financially, which leads you to look for new loan opportunities.

The way in which this gets into the crosshairs of financial institutions is by performing a hard credit pull. Having too many hard credit inquiries has a more noticeable impact on your FICO score. For those wondering what lowers credit score, this is one of the most common factors.

Types of credit in use: 10%

The fifth and last factor is the type of credit in use. A higher credit mix is good for your score because it proves that you can handle multiple payments with different rules, interest rates, and due dates at the same time. But keep in mind that this is the smallest part of your credit score breakdown. This means that it’s not worth it to open new accounts and apply for additional loans just to increase your score.

What factors don’t affect your credit score?

There are some factors which, although essential for your personal finances, aren’t relevant for your FICO score. They include:

  • salary
  • age
  • marital status
  • occupation
  • number of dependents
  • location

Please note that lenders may require some of this information, but that’s to verify your identity and residence, not to assess your creditworthiness.

What Hurts Your Credit Score?

To improve your FICO rating and maintain a robust financial profile, you first need to learn what hurts your credit score the most. Here are several factors to consider:

Missing a payment

If you miss a payment, your credit score will decrease. It’s as simple as that.

Now, the term ‘missed payment’ often depends on the date of the next credit report. Also, the amount of time by which you’ve delayed the payment is also quite relevant. Missing a payment by 30 days, 60 days, and 90 days are not the same.

Your current credit score is also of note. A single missed payment will reduce your score by more if the total number is above 700 than if it’s in the 600-700 credit score scale.

Negative credit event

An event like bankruptcy, foreclosure, deed in lieu, debt settlement, or short sale will damper your record. The effects of these events will reduce with time, but they will remain a part of the credit score formula for years. For instance, foreclosures and bankruptcies will taint your credit history for seven years.

Maxing out a credit card

While maxing out a credit card affects your credit score, the degree to which it can cause damage depends on several important factors. Your existing credit score is one of them. The higher you’re rated, the more harm can come from a single mistake.

The number of credit cards is also a factor. If you have more credit cards, you have higher maximum available credit. In other words, people who believe that maxing out a single credit card is a capital sin usually don’t know how credit scores work.

Canceling a credit card

Canceling your credit card can hurt your FICO score double-fold. First of all, you’re lowering the total amount of available credit. Second, if it’s a credit card that you’ve had for a long time, there’s a chance that you’re shortening your credit history length.

Having multiple credit cards can be a good idea. So, it’s best to avoid closing any until it’s absolutely necessary.

Credit report error

There’s always a chance that there was an error during the calculation of one or more credit score factors. In other words, a clerical error is a serious problem, and it’s far more likely and common than you might think. The only way to solve this is to make a formal complaint or reach out to a credit repair service that can do this for you.

Not having a credit card

To qualify for a good FICO score, it’s pivotal that you have at least one loan account or credit card. It also needs to be open for longer than six months. As we’ve already mentioned while discussing the five major credit score factors, the financial organization needs something to make an evaluation of. A lack of a credit card or loan account will make this impossible.

Hard inquiries

Every hard credit inquiry lowers your credit score a bit. This is usually not more than five points, and you can recover them relatively quickly. The problem can become more serious if more hard pulls are performed in a short time-span. For instance, five of them in a month would affect your credit score rating significantly.

Debt consolidation

While debt consolidation is one of the ways to fix your credit, the initial effect will be a drop in your credit rating. It’s a new funding application, and as such, it lowers your credit’s average age. It’s also a new account, which some lenders see as a risk.

Still, since debt consolidation makes it less likely that you will miss future payments, it might improve your credit history in the long run.

How to Increase Your Credit Score?

Understanding what makes up your credit score is the first step in fixing it. Still, knowing actual techniques and methods that will boost that number is just as important.

Pay your bills on time

The first piece of advice is that you should always try to pay your bills on time. This is the largest determiner of your creditworthiness, and it’s the simplest one to follow. One trick to help with this is to set reminders (in the form of notifications) and choose the autopay option whenever it’s available.

Contrary to the popular belief, missed or delayed phone and utility payments do not put you in the poor FICO credit score range. Yet, if lenders use an alternative scoring method, this might become an issue.

It’s also worth knowing that you can use your timely utility and telecom payments to build a positive credit history with the help of Experian consumer credit reporting services.

Keep balances low

The next important step is keeping your credit card balances low. The same goes for any other kind of revolving credit. To do this, you should pay your balance early, decrease your spending, or increase your credit limit. Opening a new credit card (without closing unused cards) also helps.

Other than just understanding how credit scores are calculated, it’s also a good idea that you figure out your credit utilization ratio. Generally speaking, lenders prefer the utilization ratio to be lower than 30%. This can be improved by paying off debt and becoming an authorized user on someone’s account (if they use their credit responsibly).

Don’t apply for too much new credit

Improving your credit score requires financial responsibility. Avoid overspending so that you have to open new credit too often. This will result in too many hard credit inquiries.

If you want to check your own credit score, you could do so via a credit score calculator. This typically involves just a soft pull so it shouldn’t hurt your rating.

Dispute inaccuracies on your credit score report

If there’s a clerical error, it’s pivotal that you dispute it promptly. As mentioned before, credit repair services specialize in removing derogatory items from your credit report. The majority of them even offer the money back if they fail to clear the error.

Exercise patience

Besides wanting to know what factors affect credit score, people also want to know how long it usually takes to repair credit rating.

Most delinquencies will remain on your report for up to seven years. Bankruptcies, however,  stay there for as long as 10 years. Also, hard inquiries will be in your files for two years.

While you will improve your credit score with every positive action, it will take some time for this improvement to become noticeable. There are no shortcuts, so have patience.

Wrap Up

By doing a complete credit score breakdown, you will get a better understanding of your credit score. This will ensure that you are aware of the risks and implications of every single fiscal decision you make. It will also help you prioritize and allow you to finance your long-term goals and aspirations (which will probably require loan funding).

Regardless if you are worried about your credit score, plan to improve it, or just want to lead a more responsible financial life, understanding what impacts your credit score the most is a necessary first step.


What factor has the biggest impact on a credit score?

The biggest impact on a credit score comes from one’s payment history. According to estimates, payment history is responsible for 35% of the total score. This means that you can hurt your credit score by paying late, having accounts being sent for collection, as well as having charge-offs, debt settlements, or bankruptcies. These blemishes remain on your credit score for 7-10 years.

Do utilities affect credit score?

Utilities don’t affect your FICO score. This is because utility companies do not report to credit bureaus. But FICO is not the only credit scoring model out there. So, if lenders decide to use an alternative method, it might become an issue. Lastly, with the help of Experian Boost, it’s possible to use your utility and telecom accounts to build a positive credit history.

What is a good length of credit history?

Seven years is usually taken as a good credit history length. This is because bankruptcies, late payments, and other adverse events remain on your credit record for (at least) this long. Seeing as how payment history is one of the most relevant factors that affect credit score (if not the most important), this is something to keep an eye out for.


Content writer and amateur boxer. A few years ago, I dived into the financial world with an aim to help both heavyweight and lightweight investors make a knockout. I love to spend my free time watching movies and playing video games. Other than this, doing the best I can to support my kid in achieving his lifelong dream of becoming a Ninja Turtle.

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