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What Affects Your Credit Score? Credit Factors Explained

Catherine Hiles • February 22, 2024

Credit score on laptop computer

Your credit score may be three simple numbers, but it can significantly impact your life. A good credit score can open the doors to better credit cards and loans with low interest rates, while a fair or poor score can make it much harder for a borrower to get a loan.

The first step in your personal finance journey to build your credit is understanding the factors affecting your credit score.

Certain factors, like your payment history, the amount of available credit you’re using, the mixture of accounts, and the age of your credit report, are simple to understand. Other factors, like being a co-signer for a friend or family member with poor credit or carrying balances on too many cards, are less obvious regarding what affects your credit score.

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9 factors that affect your credit score

Your credit score is calculated using several factors, including payment history, credit utilization, credit history length, credit mix, new credit, and more. The two main credit scoring models used by credit card issuers and loan providers are FICO® and VantageScore. While each calculates their scores slightly differently, the factors they use to calculate credit scores are similar.

Payment history

If you have a history of making on-time payments, your credit score will be higher. But your score will be affected if you’ve made late payments (or missed payments entirely).

Your payment history makes up around 35% of your FICO credit score.¹ Making payments 30 days late or more can quickly decrease your credit score – in fact, even one late payment can make a noticeable dent in your score. One of the easiest things to do to improve your credit score is to pay your bills on time.

If you have trouble remembering to pay your bills on time, take advantage of autopay or set up reminders. Your credit score will thank you.

High balances on your credit card

When your card balance is too high, you’re increasing your credit utilization ratio. This ratio looks at your total credit balance against your maximum credit limit across all your cards. The lower your credit utilization, the higher your credit score.

If you have a total credit balance of $500 and the max limit on all your credit cards is $5,000, your credit utilization rate is 10%. If you have $1,000 on your cards, your rate is 20%, and so on. Your credit utilization rate accounts for approximately 30% of your FICO score.¹

One way you can build credit as a beginner is to get a secured credit card. Secured credit cards are intended for those with little to no credit or those with poor credit. The limits on secured credit cards are much lower than unsecured credit cards, so it’s impossible to run up large balances. Using a secured credit card responsibly can help boost your credit score.

Length of your credit history

The length of your credit history will also impact your credit score. That’s because a short history doesn’t give lenders much insight into how well you manage debt. On the other hand, an extended history can show whether or not you’re likely to repay the loan as agreed.

This factor is measured using the age of your oldest and newest credit accounts and the average age of all other accounts. The length of your credit history accounts for around 15% of your FICO credit score.¹ You cannot do much to affect this factor besides practicing financial responsibility and paying bills on time.

Credit mix

The different types of credit accounts you have will affect your credit score. Ideally, you’ll have a mix of installment loans (mortgages, car loans, personal loans, or student loans) and revolving credit (credit cards and other lines of credit).

Credit mix makes up around 10% of your FICO credit score.¹ Your score will be lower if you only have revolving credit or lines of credit rather than a mix. Aim to have at least one installment loan and a couple of credit cards, but be careful not to have too many.

New credit

Applying for new credit can slightly negatively impact your credit score by 5 points or less.¹ When you apply, the lender will run a hard inquiry to review your credit score and history and determine whether or not to approve your application.

Getting prequalified with several lenders before applying will not affect your score. The prequalification process doesn’t affect your credit score because it uses a “soft” credit check. However, prequalification doesn’t guarantee you’ll be approved for a loan once you apply.

New credit makes up approximately 10% of your FICO credit score.¹ That’s why it’s important to only apply for credit when necessary.

The one exception is if you’re shopping around for an installment loan, like a mortgage or auto loan. In that case, multiple credit inquiries made within a specific time frame will be lumped together and appear as a single inquiry.

Having a balance on too many credits

Balances spread among too many cards can negatively impact your credit score.² Multiple cards increase the amount of credit you can access, which can encourage unnecessary spending. If you have multiple new cards, the average length of your credit history will decrease, potentially lowering your credit score. Moreover, having multiple cards can make it harder to keep track of your due dates and balances.

Instead, stick to one or two cards. If your balances are spread over several cards, work on paying off the cards with small balances first so you can set them aside.

Additionally, it’s a good idea to learn how to read a credit card statement to understand your spending better, which can help stop you from racking up balances on several cards.

Co-signing for someone else

Being a co-signer for someone else can lead to bad credit if they use credit irresponsibly.

You’re on the hook if the other person defaults and doesn’t keep up with the loan or credit card payments. And if you can’t make the payments, your credit will take a hit.

If someone asks you to co-sign, be cautious. If you decide to co-sign, make sure you can pay off the loans if needed.

Co-signing is different than having an authorized user on a credit account. If you become an authorized user, you can charge to someone else’s account but are responsible for the payments.

Withholding payments due to mistakes on your bill

If you notice a mistake on a bill, don’t ignore it. Failing to pay a bill because of a mistake can affect your credit score. You’re still responsible for making payments – and if you don’t, you can wind up in collections.

Ignoring a bill you cannot pay will affect your credit. If you are unable to pay for a bill, you could ask for a hardship discount or getting on a payment plan depending on the type of bill. This is especially common with medical bills.

If medical bills go unpaid — and unresolved — after several months, they could go to collections and end up on your credit report.

Not checking your credit report

If worrying about your credit score keeps you up at night, you might be tempted to ignore it. After all, what you don’t know can hurt you, right? In the case of your credit score, ignorance is the opposite of bliss. Errors in your credit report can affect your credit, and if you know about them, you can address them before your score takes a more significant hit.

Keeping tabs on your credit isn’t difficult. You can get a free credit report annually for each of the three major credit bureaus at AnnualCreditReport.com. Learning how to read a credit report can help you recognize discrepancies and address them quickly.

There are also a handful of free credit monitoring services, some of which your bank may offer for free. If you want to dig deeper, there are several paid credit monitoring services. These tend to come with additional services, like identity theft monitoring, that may make them worth the subscription fee.

Start building credit with the secured Chime Credit Builder Visa® Credit Card – no credit check required.*

What does not affect your credit score?

Although many factors affect your credit score, there are plenty that don’t. These include rent payments, utility payments, income and bank balances, and checking your credit score.

  • Rent and utility payments are usually not reported to credit bureaus, so they won’t affect your score. The two exceptions are if you use a rent-reporting service and are late on your rent payment or if you pay your utility bills late and the company sells the debt to a collector.
  • Income and bank balances do not affect your credit score. Your income isn’t a factor in determining your score, and bank account balances are not reported to the three major credit bureaus.
  • Checking your credit score is considered a soft inquiry, which won’t affect your score.

It’s important to understand that building credit takes time – at least six months if you are starting out and potentially longer if you’re rebuilding your credit after it’s been damaged by bankruptcies or foreclosures.

Knowing the factors that affect your credit score helps you build or boost your credit

The main factors that affect your credit score include your payment history, your credit utilization, the length of your credit history, your credit mix, and the amount of new credit you have. Additionally, co-signing for a loan or credit card with someone else, carrying a balance on too many cards, and withholding payments due to mistakes on a bill.

The best way to keep your credit score in the “good” range or better is to monitor it closely. Learn more about how to repair your credit so you can take solid steps to better financial health.

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¹ Information from Experian’s What Affects Your Credit Scores? as of February 3, 2024: https://www.experian.com/blogs/ask-experian/credit-education/score-basics/what-affects-your-credit-scores/

² Information from CNBC's How Having Multiple Credit Cards Affects Your Credit Score as of February 10, 2024: https://www.cnbc.com/select/how-having-multiple-credit-cards-impacts-credit-score/

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