What Factors Affect Your Credit Score?

Your credit score is a snapshot of your risk level that lenders and creditors take when they evaluate whether to approve you for loans or credit cards. The main components of a credit score include Payment History, Amounts Owed Relative to Credit Limits, Credit Mix and New Credit.


Different scoring models use different formulas, but most consider the same information found in your credit reports.

Payment History

A pristine payment history is the biggest factor in credit scores, and it accounts for about 35% of your score. Lenders want to see that you’ve paid your debts back on time over the course of your credit history, and they’re concerned about whether you’ll continue to pay on time in the future. A few late payments may not be a score-killer, especially if they’re isolated incidents and aren’t frequent.

Your payment history includes the information in your credit report related to your debts, such as installment accounts (like auto loans or mortgages) and revolving accounts like credit cards. Utility payments, retail accounts and other types of debt usually don’t show up in credit reports, but they may still impact your credit if you miss them.

Other important factors in your credit score include the percentage of debt you owe, known as “credit utilization,” and the length of your credit history. These factors indicate how long you’ve been a responsible borrower and that you’re less likely to default on a new loan or credit card, which will improve your score.

Many scoring systems also look at how often you’ve applied for credit and the number of new credit accounts that have been opened recently. Frequent inquiries can make you a higher risk borrower and reduce your score. However, inquiries made by lenders that are monitoring your account or making prescreened credit offers don’t count against you.

Credit Utilization

Credit utilization measures how much debt you owe on revolving accounts like credit cards, compared to the total amount of available credit. This factor is one of the biggest in determining your credit score, so it’s important to keep your utilization low. A high credit utilization rate can indicate that you’re not handling your credit responsibly, or that you are under financial strain.

The best way to do this is to monitor your balances on a regular basis and pay them off in full each month. This will ensure that your current account balances are only what’s being reported to the credit bureaus, which is good for your credit scores.

Another option is to ask your credit card issuer for a credit limit increase, which can be done over the phone or online. This will allow you to continue using the same card you’ve always had, but with a higher credit limit. Credit scoring models consider historical utilization, as well as the current level of debt you’re carrying. This means that even if you only use 10% of your credit limit, it may still hurt your credit score if that figure has increased over time.

It’s recommended to aim for a credit utilization ratio of 30% or lower. However, this is only a general rule of thumb, as your score will depend on the information that’s in your credit reports.

Length of Credit History

The length of your credit history — or the average age of the accounts on your credit report, as calculated by VantageScore and FICO — makes up 15% of your score. This factor is viewed favorably by lenders and credit scoring models, as it demonstrates a long track record of responsible credit management.

How your credit history is determined, and the exact weight given to this category, varies by credit reporting agencies. Generally speaking, though, your history is comprised of the number of years you’ve had accounts open, the ages of those accounts and the average age of all of your accounts. It’s important to avoid voluntarily closing accounts, as that will shorten your overall credit history.

Having a variety of types of accounts, including revolving credit and installment loans (like mortgages or auto loans), also helps your credit history. It’s a good idea to keep all of your credit cards open and to use them responsibly.

When you’re first building your credit, it may take time to build a solid score, especially if you have no or little existing credit. However, by following some best practices, you can help ensure that your scores reflect your positive behavior: Making on-time payments on all accounts, limiting new account openings and maintaining a mix of both revolving and installment accounts should all lead to improved credit scores over time.

New Credit

Opening a new credit card can have a positive impact on your score if it is handled responsibly. However, lenders view too many applications for credit as a sign that you are in financial trouble and may be desperate for credit. As a result, it is important to only apply for a new card when it’s necessary.

The credit scoring agencies look at your credit history to determine your score, and they weigh a number of factors, including payment history, amount owed and credit utilization. They also consider the age of your credit, the length of your credit history and your credit mix. In addition, the agencies look at your new credit. According to FICO, new credit accounts for about 10% of your score. VantageScore explains that the new credit factor includes recent credit inquiries and newly opened or closed accounts.

When you apply for a new credit card, the lender does a hard inquiry into your credit report with one of the major consumer reporting agencies, Equifax, Experian or TransUnion. This results in your score taking a temporary dip due to the new activity on your report.

Opening a new credit card can also increase your total available credit and lower your overall credit utilization. Keeping your credit utilization below 30% can help boost your credit score.