What Affects Your Credit Score?


If you’re like most consumers, you know how important your credit score is – but you probably have little to no idea what affects your credit score. Maybe you know that your credit score is based on how well you pay on your debts — and to some extent you’re right. But there are numerous other factors that are just as important to how your credit score is calculated.

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Payment History

Payment history is the most important factor that affects your credit score, accounting for 35% of your score. Payment history takes into account all payments that you’ve made on the various types of credit (i.e. credit cards, installment loans, mortgages) that appear on your credit report. It also takes into account adverse public records information, such as tax liens, bankruptcy and foreclosures, and other derogatory items like collection accounts.

The following payment history items affect your credit score:

  • number of “paid as agreed” accounts
  • number of delinquent accounts
  • severity of the delinquent payments, and
  • recency of the delinquent payments

Amounts Owed vs. Available Credit

The second most important factor affecting your credit score is how much you owe. Some consumers are under the misunderstanding that the more credit you use, the better your score. While it is important to have a long history of making payments as agreed, high use of credit can negatively impact your score as it will make it look like you might be overextended. The general rule of thumb is to maintain your credit usage below 30 percent of available credit.

Length of Credit History

Time is a critical component affecting credit score because people with long histories of using credit and paying accounts on time are generally a better credit risk than those that are new to credit. A Longer credit history could mean higher credit scores.

Number of Inquiries on Your Credit

This is an important factor that looks at what types of credit you’ve opened or applied for most recently. This includes opening a new credit card or a store card, applying for a mortgage, car or a personal loan. A single inquiry won’t necessarily hurt you, but multiple inquiries in a short time span could indicate that you have been denied credit and might be getting desperate.

Types of Credit Used

What types of credit you use is also an important factor in your credit score. The FICO score likes to see a variety of credit: a healthy mix of credit cards and installment loans. This way, lenders know that can not only manage credit, but you can manage different types of credit.

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