What are Factors that Affect your Credit Score

What factor affects credit score
Factors that affects your credit score

Your credit score is one important number that has great effects on every individual’s financial life. Your credit score determines the interest rates you pay on credit cards and loans.

It helps lenders know in the first place if you will even get approved. Credit scores are used by lenders to know if you are creditworthy and your history with debt management and repayment.

A high credit score shows that you’re creditworthy and can help you get approved for a higher credit limit on your existing cards. And make you more likely to get approved for important purchases including a home or car.

Since credit score is this important, let’s take a look at the factors that affect credit score and what to do to improve. So you don’t end up having bad credit.

 5 Factors that affect your credit score

5 major factors affect your credit score. The first two in this list: Payment history and credit utilization have a major impact on your credit score as they contribute more than 50% of your credit score.

The two major scoring companies in the US, FICO, and Vantage Score agree to this assertion even though they differ a little in their scoring method.

Here’s a breakdown of the factors that affect your credit score and their impact per percentage:

Factors that affects your credit score
5 Factors that affects your credit score
  1. Your Bill Payment History
  2. Credit Utilization
  3. Length of credit history
  4. Mix of credit types
  5. Recent applications (Number of credit inquiries)

Your Bill Payment History

Payment history is usually contained in your credit report. It affects your credit score greatly. It determines 35% of your credit score according to FICO. Although Vantage Score doesn’t give percentages, it calls payment history “extremely influential”.

That said, payment history is the most important factor that affects your credit score. Lenders are always on the lookout for customers who can manage their existing debts and are not in a financial crisis of any sort. So they use previous credit behavior to forecast future credit behavior and that’s why a good payment history is important.

How timely you pay your bills monthly greatly affects your credit score. When you frequently miss payments or make late monthly payments, you’re sending a red flag to the lender.

Your future lender would see you as a risky borrower or someone in some kind of financial hurdle and may not approve your new line of credit even if they would want to take that risk, you’re definitely going to be paying higher interest rates than someone with a good payment history and your credit limit will most likely below.

Apart from frequently missed payments and late payments, serious payment issues, like charge-offs, collections, bankruptcy, repossession, tax liens, or foreclosure can devastate your credit score, making it almost impossible to get approved for anything that requires good credit.

What to do: Make payments on time and avoid missing payments. If you’re the busy type or always engaged you can set up auto-pay or calendar reminders so you don’t miss due dates. You can as well speak to your creditor to move your due date to your paydays.

Credit Utilization

Credit Utilization is the ratio of your credit balance to your credit card limit. For example, if you have a credit card with a credit limit of $10,000, and your credit balance is $2,000, your credit utilization is 20%. In simple terms, it’s the amount of your credit limit you use expressed as a percentage.

Credit utilization is the second most important factor that affects your credit score after your payment history. It determines 30% of your credit score according to FICO while Vantage Score calls it highly influential.

FICO and other scoring companies recommend that you keep your credit utilization below 30%. Meaning you shouldn’t go over 30% of your credit card limit, in order not to negatively affect your credit score. 10% credit utilization is great because the best credit scores have 10% credit utilization or less. Think of it this way: the lesser your credit utilization, the higher your credit score.

Too much debt and having high balances can heavily affect your credit score negatively.

What to do: Don’t charge more than 30% of your credit limit on your card. In all you do, keep your credit utilization limit low. If you feel your credit limit is too low, you can always increase your credit limit.

Length of Credit History

How old is your oldest credit account? The older your credit account, the better. The length of time you have used your credit account determines 15% of your credit score.

With that said don’t close your old credit accounts or else there is a compelling reason to do so such as an annual fee on a card you no longer use. As closing, such an account can cause a hit in your credit score.

Having an “older” credit age is better for your score because it shows that you have a lot of experience handling credit. Closing existing accounts or opening new credit accounts can lower your average credit age which affects your credit score. That is why it is not advisable to open several new accounts.

What to do:  You can be an authorized user on an old account with an excellent payment record. Avoid opening several new accounts at a time as it can have a heavy impact on your credit score. Don’t close old credit accounts except you really do as that can lower your average credit age.

Mix of Credit Types

There are basically two types of credit accounts: revolving accounts (such as credit cards and lines of credit) and installment loans (like your mortgage or car payment). Having a mix of these credit types on your credit report positively influences your credit score. Because it shows that you have experience managing various types of accounts.

Types of credit on your report constitute 10% of your credit score only. Not much of an impact. Having only one type of credit account wouldn’t have a heavy effect on your credit score.

Recent Application (Number of Inquiries)

Each time you submit an application that requires a credit check, like applying for a loan or credit card, an inquiry is placed on your credit report showing that you’ve made a credit-based application. This inquiry is called hard inquiry and has effects on your credit score. Hard Inquiries constitute 10% of your credit score.

The other type of credit inquiry is called “soft inquiry”. It is what landlords or companies may run as a condition of doing business with you.

The good news with inquiries is that only those inquiries made within the last 12 months affect your credit score. After 24 months, inquiries completely disappear from your credit report

Note: Checking your credit report results in a “soft” inquiry, and does not affect your credit score.

What to do:

Avoid several hard inquiries, especially within a short period, it will affect your credit score

Factors That Don’t Affect Your Credit Score

There are some factors due to misconceptions that are believed can affect your credit score but in reality, they can’t- at least not directly. They include:

  1. Income and bank balances
  2. Rent and utility payments
  3. Checking your score

Income and bank balances

Income and bank balance don’t directly affect your credit score. Although your income plays a fundamental role as to whether your credit card application can be approved or denied.

On the other hand, income can indirectly affect your credit score. For instance, if you have a high annual income, you can apply for a higher credit limit. Which can in turn lead to low credit utilization, which improves your credit score.

Rent and Utility Payments

Basically, your rent payments and your utility payments are not reported to the credit bureaus, so they affect your credit score. But if you’re using a rent reporting service or if you’re late on utility payments, there is an exception. The utility company may sell it or charge it off to a collector, who can report it to the credit bureaus and hurt your score.

Some new credit scoring variations, like Experian Boost, factor utility bills into building your credit score.

Checking Your Score

Checking your credit score is considered a “soft inquiry” and doesn’t have any impact on your credit score. You’re free to check your credit score and credit reports anytime, any day without fear of hurting your score.


There are five key factors that can positively or negatively affect your credit score. There are your bill payment history, credit utilization, length of credit history, a mix of credit types, recent applications (Number of inquiries).

Knowledge of these factors and how to use them to your favor can help improve your credit score and help you secure low-interest rates and better future terms.

Read Also:

What Is Cashback And How Cashback Works

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