All the Factors that Influence Your Credit Score

March 10, 2023

Key takeaways

  • There are five factors that make up your credit score: payment history, credit utilization, length of credit history, types of accounts, and recent activity.
  • Each of these credit score factors carries a different weight, with payment history and usage having the largest impact on your credit score.
  • Consistently making on-time payments and maintaining low balances is the most important thing you can do to achieve a good credit score.

In this blog, we share exactly what affects your credit score. We’ll show you how impactful each of the five credit score factors is, so you’ll be prepared to build a good credit score. With a good score on your credit report, you can qualify for competitive rates when applying for mortgage loans, student loan refinancing, and more.

First up, what affects your credit score?

You’ve probably heard of the three major credit bureaus that provide credit scores. Equifax, Experian, and TransUnion each use a unique scoring model, and they may not collect information from all the same lenders. However, each bureau takes the same five credit score factors into account. Read on to learn more about what affects your credit score. Plus, find out what factor has the biggest impact on your credit score.

1. Payment history

Your ability to make on-time payments is the number one factor credit scoring agencies use to assign your score.

There are a few aspects agencies consider in your payment history:

  • How often do you miss payments?
  • How long past the due date were your bills paid?
  • How recently have you missed your payments?
  • How many accounts have late payments?

Missed a payment? Don’t panic. Typically, a late payment won’t show up on your credit score until it’s more than 30 days past due. In other words, the faster you take action to address outstanding bills, the better shape your credit score will be in.

Tip: set up automatic payments to ensure you never miss a due date. And make sure your autopay is set to withdraw a few days before the deadline to account for processing time!

2. Credit utilization

The second most important factor: is how much debt you owe versus how much credit you have available. This is why it’s important to use credit responsibly. Simply having loans or credit cards isn’t bad, but taking on too much debt can be detrimental. Carrying a high balance or maxing out your credit limits can be detrimental to your credit score.

3. Length of credit history

A long history of on-time payments and responsible credit usage is good for your credit score. Credit scoring agencies often take the average age of each of your credit accounts. In fact, it’s important to maintain old accounts rather than closing them altogether when paying down debt.

4. Types of accounts, also known as credit mix

Maintaining a variety of account types reflects well on your credit history. For example, managing both credit cards and an auto loan demonstrates that you can be responsible for different types of credit.

However, since other factors are weighted more heavily, it’s not necessary for you to maintain a variety of accounts to achieve a good score. What’s most important is paying on time and keeping a reasonable level of debt.

5. Recent activity

Each time you apply for a loan or a new credit card, that shows up on your credit report as a hard inquiry. While hard inquiries like recent applications show up on your credit report, simply checking your credit does not – this is considered a soft inquiry

Additionally, new credit may temporarily impact your credit score. However, this usually levels out over time. What’s most important is applying for new lines of credit responsibly. Submitting frequent applications can reflect poorly on your credit.

How are credit scores calculated?

Each credit reporting agency has a unique scoring formula, with each factor carrying a different weight. For instance, FICO scores these factors this way:

However, the three credit bureaus don’t necessarily all have the same information. For example, Equifax may collect information from one lender that TransUnion does not. As a result, your credit score may differ slightly based on which bureau your report comes from.

What is considered a good credit score?

Credit scores range from 300 to 850 points. Although each credit scoring model is unique, they roughly break down like this:

  • 550 and below: bad
  • 550 to 650: fair
  • 650 to 700: good
  • 700 to 750: very good
  • 750 to 850: excellent

When you have good credit, lenders consider you to be a low-risk borrower. That means they’re more likely to approve you. In addition, those with good credit also get a better deal on their loans, often qualifying for more competitive interest rates and better loan terms.

A good credit score is a foundation you need to achieve your financial goals. Learn more about building a strong financial foundation with SECU.

Build your credit foundation with SECU

People with poor credit or no credit at all are seen as risky borrowers. That can make it harder to buy a car or own a home. Whether you’re just starting out or you’re rebuilding your credit score, SECU can help you build credit responsibly. Check out our starter credit cards to build a solid credit foundation.

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