Understanding The 5 Key Factors That Affect Your Credit Score

factors that affect credit scores

Financial health encompasses a person’s financial decisions, including purchases, debt, investments, and assets, with credit score being just one aspect. Understanding your credit score/ credit report is crucial for achieving financial health. To optimize your credit score, focus on five key factors:

Credit Score Factors That Affect Your Credit

  1. Payment History – consistent debt repayment.
  2. Existing Debt – total current debt across accounts.
  3. Credit History – past borrowing and credit line activity.
  4. Hard Credit Inquiries – inquiries from seeking new credit.
  5. Types of Credit – variety and number of open credit lines.

In this article, we will discuss these 5 factors that hurt your score – and how you can leverage them to increase your credit score and better your financial health in the process.

Payment History

A good payment history is the key to having a good credit report. Out of the five credit score factors that hurt your credit score payment history is the most important, encompassing 35% of your overall score. Some examples of instances in which your payment history is monitored include (How Payment History Impacts Your Credit Score | MyFICO, n.d.)

● Mortgage loans
● Finance company accounts
● Installment loans
● Credit cards

In instances of open credit lines (like the ones above) that must be paid off, it is important to make a habit of paying your bills on time.

Why is paying your bills on time so significant? Not only do on-time payments account for the lion’s share of your credit score, but this helps your reputation with lenders and other financial institutions because they view you as less risky when you have an exceptional credit history when you apply for a new credit. This contributes positively to the overall financial health of an individual, because regular paying off of debt decreases it over time, which is one of the positive attributes that makes an individual financially healthy.

Amounts You Owe

Another way that your credit score is calculated algorithmically has to do with the amount of debt that you already have. Debt that is previously existing is considered the second most important factor in developing a composite credit score, accounting for 30% of your entire credit score. It is such a large percentage of the score calculation because lenders view the amount of money that you owe as an indicator of your future credit utilization.

If the amount of debt that you already have is high, lenders see you as a risk when you apply for more credit lines (like loans or credit cards). Your existing debt is viewed in five distinct categories to create a credit score:

  1. The Amount Owed On All Accounts – This is the total amount of money that you owe on across all your credit mix combined (see the “payment history” section above for examples of account types).
  2. Amount Owed On Different Types of Accounts – each type of account is grouped together and analyzed based on how much is owed in that category (i.e. how much money you owe in student loan payments, how much money you owe in credit card debt, etc.).
  3. How Many Accounts Have Balances – This one is pretty self-explanatory. Among all the credit lines you have open, how many of those currently have a balance on them?
  4. Credit Utilization On Revolving Accounts – known more simply as a credit utilization ratio- this is a percentage that shows how much money you have spent among all of your available credit mix.
  5. Remaining Loan Balances – this one is self-explanatory!
    To get your credit score to rise, it is essential to make paying down your debt a priority, both on short-term revolving accounts (like credit cards) as well as long-term accounts (like loans). You will find that the more credit you have used up, the more negatively impacted your credit score will be.

Length Of Your Credit History

Another factor that affects your credit score is history, or, how long you have had your credit accounts open. This concept includes:

  • How long your longest account has been open
  • How recently you have used a credit account
  • The average age of all accounts

More often than not, your credit score will increase as the years go by, simply because your accounts are aging (that is if you keep those accounts open). The longer your history is, the more creditworthy you are to lenders, which helps to raise your credit score. The idea here is that a longer credit history shows that you are responsible enough to maintain loans and credit lines over time.

The best way to easily establish a credit history that helps raise your credit score includes listing a co-applicant with good credit when applying for new credit lines (thismainly applies to credit cards). Another option is applying for a secured credit card, which is a credit card that requires a cash deposit upon opening and use. Typically, the down payment is equivalent to your available credit line. Credit score experts agree that these are the two best methods for establishing and improving credit overall.

Hard Credit Inquiries

The amount of hard credit inquiries other financial institutions have made on you also accounts for a portion of your credit score (albeit it is a smaller percentage – about 10 percent). A hard inquiry is made by a financial institution that you have applied for a loan or credit lines. These institutions range from credit card companies to car dealerships, to loan servicers and beyond.

The most important thing to remember about a hard credit inquiry is that it is a type of credit pull that actually deducts some points (no more than 15, according to FICO), and it’s important to be conscious of this when applying for loans. If you apply for multiple credit lines, there is a potential that your credit score will lower slightly each time. This is because lenders will note that you have applied for multiple credit lines, and you will be viewed as risky. For more information on hard inquiries, see our article on Hard Inquiries Vs. Soft Inquiries.

Types of Credit You Have Open

The final influence on your credit score (albeit a small one) is the types of credit that you have open. Roughly 10% of your credit score is accounted for by viewing what types of credit lines you have open. This criteria helps lenders view your risk level by gauging how successful you are at managing diverse types of credit.

To get the most potential out of this part of your credit score, it’s helpful to have different types of credit lines open. There are two major types of credit lines: installment accounts and revolving accounts. Examples of installment accounts include mortgages, auto loans, and student loans while revolving accounts are more along the credit lines of various kinds, retail store cards, and HELOC (Home Equity Lines of Credit).

The Bottom Line

Cumulatively, you can see above that there is a lot at play when determining your credit score. It is important to pay attention to all of these variables to properly monitor trends to help you improve your credit score (and ultimately get it to rise). Raising your score is hard work, but ultimately, helps contribute to your financial health overall, which will help you attain the financial freedom that you want and deserve! To recap, there are five main ways that you can get a good credit score, they are:

  1. Paying your bills on time
  2. Reducing the amount of money used on your open credit lines
  3. Keeping old credit lines open over long periods of time
  4. Not applying for new credit lines unless you have to
  5. Diversifying the credit lines that you do have open

Credit Score Frequently Asked Questions

What is a credit score?

It is a numerical representation of an individual’s creditworthiness. It is a three-digit number that is based on the history of an individual’s credit and financial behavior. Lenders use it to evaluate a person’s ability to repay debts and to determine the risk associated with lending them money.

How is a credit score calculated?

It is calculated based on a number of factors, including payment history, the amount owed, length of credit history, and types of credit used. These factors are used by the credit bureaus to determine an individual’s creditworthiness and the likelihood of repaying debts.

How can I check my credit report? 

There are a few ways you can check:

  1. Credit bureau: You can request it directly from the three major credit bureaus.
  2. Free credit score services: Many websites and financial institutions offer free score services. They typically provide you with an estimated credit score based on the information they have access to.
  3. Credit monitoring services: These services often provide access to your score and credit report.
  4. Credit card or loan providers: Some credit card issuers and lenders provide access to your credit score as part of their services.

How often should I check my credit score? 

It is generally recommended to check it at least once a year. However, if you are in the process of applying for a loan or credit, it may be beneficial to check it more frequently to ensure there are no errors or discrepancies.

Does checking my credit score lower it? 

No, checking your own credit does not lower it. This is known as a “soft inquiry” and does not have any negative impact on your credit score. However, if a lender or credit card issuer requests and reviews your credit report as part of a loan or credit application, it may result in a “hard inquiry” which can have a minor, temporary impact on your credit.


Disclaimer: Boost Your Score does not offer financial advice. The information presented on this page is intended for general consumer awareness and does not constitute legal, financial, or regulatory counsel. This content does not represent the perspectives of any issuing banks. While the information might include third-party references or content, Boost Your Score does not validate or guarantee the third-party information's precision. Internal links are promotional content for Boost Your Score products. Please take into account the publication date of Boost Your Score's original content and any related content to fully grasp their contexts.

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The team at Boost Your Score has over 50 years of combined experience in credit building. Our goal is to help individuals take control of their financial destiny and improve their credit scores. We provide guidance and support regardless of your credit history, whether you're just starting your credit journey or looking to take your score to the next level.

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