Five Factors That Affect Your Credit Score

The Five Factors That Determine Your Credit Score

Understanding how credit scores are calculated helps you make informed financial decisions. FICO and VantageScore use similar factors with different weightings.

1. Payment History (35% of FICO Score)

Your payment history is the most significant factor. Late payments, collections, charge-offs, bankruptcies, and foreclosures all damage your score. The impact depends on how late the payment was, how recently it occurred, and how frequently you've been late. Best Practices: Set up automatic payments or payment reminders. If you miss a payment, bring it current immediately—the damage increases the longer it remains unpaid.

2. Amounts Owed / Credit Utilization (30%)

This factor examines how much you owe relative to your credit limits. Credit utilization ratio—the percentage of available credit you're using—is particularly important for revolving accounts like credit cards. Best Practices: Keep credit utilization below 30% overall, and ideally below 10% for optimal scores. Pay down balances rather than moving debt around.

3. Length of Credit History (15%)

Longer credit histories generally result in higher scores because they provide more data about your credit behavior. This factor considers your oldest account, newest account, and average account age. Best Practices: Keep old accounts open even if you don't use them frequently. Closing old accounts can shorten your credit history and increase utilization.

4. Credit Mix (10%)

Having experience with different types of credit—revolving (credit cards), installment (car loans, mortgages), and other types—can positively influence your score. Best Practices: Don't open accounts you don't need just to improve credit mix. This factor has relatively low impact and isn't worth taking on unnecessary debt.

5. New Credit / Recent Inquiries (10%)

Opening multiple new accounts in a short period suggests higher risk. Hard inquiries from credit applications can temporarily lower your score by a few points. Best Practices: Rate shop for loans within a focused period (14-45 days depending on the scoring model) so multiple inquiries count as one. Avoid applying for unnecessary credit.

Common Mistakes to Avoid

- Closing old credit cards to "clean up" your credit - Maxing out credit cards even if you pay them off monthly - Applying for multiple credit cards in a short period - Ignoring small debts sent to collections

When to Seek Professional Help

If you're struggling to manage multiple debts or have serious delinquencies, nonprofit credit counseling agencies can help you develop a debt management plan. Educational Disclaimer: This content is for educational purposes only and does not constitute financial advice.