5 Factors That Affect Your Credit Score

Your credit score is the key metric that sums up your credit health, how it’s generated is a mystery to many. Understanding the five factors that affect your credit score is one of the first steps to creating an actionable plan to improve your credit score and unlock more opportunities. Although there are five major factors, not all of these affect your credit score equally. Understanding the breakdown of factors that impact your credit score and how they’re each generally weighted can help you maintain a good score and determine how to.

Credit Score Factors

Payment history – 35%

Your payment history is one of the most heavily weighted factors in generating your credit score because it shows lenders that you’ve been reliably making consistent, on-time payments—an indicator that you’re likely to pay back your debts in the future. For this reason, just one or two late payments could drag your score down significantly.

Multiple missed payments can turn into a “derogatory mark” on your credit report, which includes accounts in collections, bankruptcies, foreclosures and liens. These typically take 7-10 years to clear from your credit history, damaging your credit score and impacting your ability to qualify for credit or get desirable rates.

What you can do: Paying your bills on time is one of the best things you can do for your credit score. Setting up online alerts or automatic bill payments across your accounts can help you keep track of your bills and remove the risk of accidentally missing a payment.

Amounts owed and credit card utilization – 30%

Credit utilization measures the amount of your overall credit card limit that you are using. Staying below 30% is a good goal; keeping it below 10% is ideal. A high credit utilization signals to lenders that you’re overextended and may not be able to handle more credit.

Your credit utilization ratio is calculated by dividing your total outstanding balances on all of your cards by your total credit limit. Credit card issuers typically report your payment and utilization information based on billing cycles and not real time, so your credit score may not reflect the most recent updates to your credit card balance and credit limit. To learn more about your score and your utilization ratio, sign up for Upgrade’s Credit Health tool.

What you can do: Adjust your spending so that you’re not utilizing too much of your credit at a given time. Consider a debt consolidation loan through Upgrade to help you streamline debt repayment, and prioritize paying off high-interest debt when you can.

Credit history and age of credit lines – 15%

Establishing a long credit history usually helps your credit score as long as you have a consistent history of on-time payments on your open accounts. Factors that are considered include how long your credit accounts have been open—the age of your oldest account, the age of your newest account, and an average age of all your accounts—how long specific credit accounts have been established, and how long it has been since you used each account.

What you can do: You can’t change when you first opened your first credit card, but keeping your oldest credit card open could help. Unless you’re paying high fees or you’re racking up too much debt, it might be best for you to keep your oldest credit card open to maintain your current credit history. Closing your first credit card could mean shortening your credit history and reducing your available credit, which could lower your credit score.

Credit mix and number of accounts in use – 10%

The number and mix of credit accounts that you have in use—credit cards, auto and student loans, mortgages and other lines of credit—all contribute to your credit score. Generally, having more open credit accounts translates into better credit scores. Why? Having more accounts means you’ve been approved for credit by more lenders. Additionally, having a diverse mix of credit across the two main categories—revolving credit and installment loans—can increase your credit score:

• Revolving Credit: credit products such as credit cards or home equity lines of credit (HELOCs) in which you make different payments each month depending on how much credit you utilize
• Installment Loans: loans with terms of fixed payments made over a fixed timeline with fixed rates

What you can do: Diversify your credit mix. If you decide that you can and want to open a new account, consider which type of credit product you should apply for, revolving or installment. Check out these tips for managing revolving credit and keep your credit in good standing.

Hard credit inquiries and new credit – 10%

Each time someone pulls your credit report—a lender, landlord, or insurer—an inquiry is documented on your credit report. One hard inquiry can stay on your credit report for two years, but is unlikely to affect your score more than a few points. However, attempting to open several new lines of credit in a short period of time can result in multiple hard inquiries and may be more detrimental to your credit score. Lenders who see that you have numerous recent inquiries may worry that you are applying at several places because you’re unable to qualify for credit or may be desperate for money. 

What you can do: To keep your credit score up to par, avoid applying or opening several lines of credit at once.

Bottom Line

Reading your credit report for the first time may feel like information overload, but learning how each factor affects your credit score can help you make a plan to improve your credit health. To see your individual score and where you stand on each of these factors, sign up for Upgrade’s free Credit Health Monitoring.