5 Significant Factors That Affect Your Credit Score

Why is your credit score so high or so low?

What can you do to maintain a good score or to improve a poor credit score and stop it from tumbling?

There are so many questions tied to just one answer – factors that affect your credit score!

Once you figure out the factors that affect your credit score, you’ll know exactly how to maintain a good score, improve a poor one or stop it from crashing.

What’s a credit score?

If you’re wondering what’s a credit score and how it works, I strongly recommend you start with a beginner’s guide to understanding credit score.

Here’s a quick recap!

A credit score is a number that reflects an individual’s creditworthiness level which lenders use to determine if such individual deserves a loan from them or not.

Most often, car dealerships, mortgage bankers as well as credit card firms are the three lenders that will ascertain your credit score before determining the amount they are willing to loan you and the interest rate to accrue to such loan.

Also, employers, insurance firms, property management companies and landlords may ask for your credit score.

They do this to ascertain if you’re financially stable before going into any deal with you.

So in this piece, we’ll review the five most significant factors that affect your credit score.

We’ll explain these factors, define the extent at which they affect your score, how they affect it, and then we’ll review how these factors are weighed when you apply for a loan.

The 5 Most Significant Factors That Determine Your Credit Score

So what are the factors that count towards your score?

Primarily, your credit score indicates whether or not you have a healthy financial history as well as reliable credit management.

Credit scores can range from 300 to 850.

Bureaus such as TransUnionEquifax, and Experian provide credit scoring methods that agencies such as VantageScore and FICO use to calculate your final credit score.

Depending on the data in your credit file, credit agencies such as FICO and VantageScore use the data to determine your eventual credit score.

While the credit scores reported by VantageScore and FICO might be slightly different, both scores will reflect a similar level of creditworthiness and financial stability.

For more detail on this, here’s a beginner’s guide to understanding credit scores.

Elements That Makes Up Your Credit Score

1. Your Payment History

Your payment history takes up 35% of your entire credit score making it the most important factor that affects your score.

When lenders are trying to figure out if a potential borrower is worth a loan or not, one of the key questions they always ask is “will he or she be able to pay back?”

Your payment history is the most significant factor of your credit score and the reason is obvious.

The payment history reviews your level of trust – if you can be trusted to pay back the loan you’re seeking!

Here are the key things that count towards your payment history:

  • Do you pay your bills at the right time for all of the accounts on your credit report? Late payments have a bad impact on your credit score.
  • Whenever you have to make late payments, how late were those payments? Was it 90+ days, 60+ days, 30+ days or less? The later the payments, the higher the negative impact it will have on your score.
  • Do you have any account that has ended up in collections?
  • Do you have any foreclosure, charge-offs, attachments or wage garnishment, bankruptcies, and lawsuits etc? These are some of the key red flags that lenders lookout for.

The period of the last negative event, as well as the rate of recurrence of the missed payments, impacts the credit score deduction.

For example, an individual who missed credit card payments seven years ago will be viewed as less of a risk compared to someone who missed a payment a few months ago.

2. Amounts Owed

Your ‘amounts owed’ takes up 30% of your entire credit score, making it the second most important factor that affects your credit score.

What if you have been regularly making all your payments at the right time but then you’re almost at a breaking point?

FICO scoring method reviews your credit utilization ratio.

The ratio indicates the amount of debt you have and compares it to the credit limits available to you.

Here are the key elements that are considered:

  • What’s left of your total available credit? It is easy to assume that having a $0 balance on your account with translate into high scores. But that’s not true.
  • While having less is better, owing some amount is healthy for your scores because lenders want to ascertain that you can be trusted with money to spend it responsibly and pay back your loan.
  • What’s the amount you’re owing on particular types of accounts like car loans, mortgage, credit cards, and installment accounts etc? Lenders are interested in seeing that you have several different types of credits and how well you can manage them responsibly.
  • What’s the total amount of money you’re owing compared to the actual amounts you have on your installment accounts?

While less is considered healthy, an individual with a balance of $100 with a credit of $1000, may be seen as more responsible to someone who owes $7000, on a $10,000 limit credit card.

3. Length of Credit History

The length of your credit history takes up 15% of your entire credit score.

Here’s how it works:

How long you have been using credits count towards your credit score significantly even at just 15%.

For instance, lenders will consider factors such as the number of years you have had obligations and the age of your oldest account as well as the average of all your accounts.

Lenders prefer borrowing to someone with a long credit history as long as it is free from late payments and other negative issues.

But if you have a short history, it’s a good way to go too if you’ve made your payments at the right time without owing too much!

This is one of the key reasons personal finance experts strongly advise that you leave your old credit card account open even if you’e no longer using them.

Older credit card accounts often contribute to building credit score. So leaving your old account open is one of the easiest way to go.

4. New Credit

New Credit is responsible for 10% of your entire credit score.

FICO reviews the number of new accounts you have.

They consider the number of new accounts you recently applied for and when was the last time you opened a new account.

Anytime you apply for a new line of credit, the lender will conduct a hard inquiry to ascertain your credit information.

A hard inquiry is different from a soft inquiry such as eliciting your own credit information.

Hard inquiries can trigger a minor and temporary fall in your credit score.

This is so because the score presumes that once you open several new accounts with high percentages compared to the entire number, you should be considered a higher credit risk.

People are known to open several new accounts when they are going through cash flow issues or intend to accrue a lot of new debt.

For instance, when you apply for a mortgage, your lender will review your total current monthly debt obligations in the process of trying to figure out how much mortgage you’re eligible for.

So if you have opened some new credit card accounts, it could indicate that you intend to spend a lot going forward.

This also means that you may be unable to afford the monthly mortgage payment the lender had anticipated you’re qualified for.

It is difficult for lenders to figure out how much to lend you depending on something you may be capable of.

So they rely on the credit score system to determine how much of a credit risk you could be.

FICO scores only consider your hard inquiry history and your new lines of credit in the last 12 months.

As such, do all you can to limit the number of times you apply for and open new credit accounts within a year.

Nonetheless, multiple inquiries and rate shopping to mortgage and auto lenders are often viewed as a single inquiry.

This is because it is assumed that the potential borrower i only rate shopping without the intention to buy multiple houses or cars.

Better still, if you keep the search below 30 days can help you prevent a negative hit on your score.

5. Types of credit in use

The various types of credit you’re using takes up 10% of your entire credit score.

So FICO looks at the mix of various types of credit you’re using. This include mortgages, credit cards, installment loans, and store accounts.

FICO also considers the entire number of accounts you have.

Types of credit in use only makes up a small fraction of your score so you don’t have to be worked up if you don’t have an account in each of the mentioned categories.

Also, you shouldn’t make the mistake of opening new accounts just to raise your mix of credit types.

Factors that will not affect your credit scores

It is easy to assume that several other factors are considered while calculating your credit scores.

To clarify this, here’s a simple list of factors that aren’t considered and they do not affect your credit score in any way, according to FICO:

  • Your religion, national origin, color or race
  • Your salary
  • Child support and family obligations
  • Where you’re living
  • Being a part of a credit counseling program
  • Your marital status
  • Your age
  • Receipt of public assistance
  • Your occupation, employer and employment history (other credit scores agencies or even lenders may list this as part of their considerations.
  • Any information that is omitted in your credit report

How to maintain a good score or improve a poor score

Here are practical tips about how to maintain a good credit score and improve a poor credit score.

You can also read more about why your credit score is crashing and what you can do to improve it.

  • Keep an eye on your credit utilization ratio. Make sure your credit card balances are not above 15% – 25% of your entire available credit.
  • Make sure you pay your accounts at the appropriate time. If you’re late for whatever reason, make sure you’re not more than 30 days late.
  • Avoid opening several new accounts at once or within a 12 months interval.
  • If you intend to make a big purchase that requires a huge loan such as a mortgage or an auto loan, you should retrieve your credit score about six months in advance. This will give you enough time to fix any potential errors from your part or from the credit score company and if possible, improve your score.
  • Don’t fret if you have a very bad credit score and a lot of loopholes in your credit history. Good news is you can start improving your score right away. Start by making better choices as the flaws in your credit history become irrelevant as time goes by.
  • Don’t make decisions that will trigger a hard inquiry on your score if you’re not going to make any big purchase or seek for a significant loan. In essence, you shouldn’t cause a hard inquiry into your score just for the fun of it.
  • You should consider setting up an emergency fund with easy access to instant withdrawals. Having an emergency fund set aside that is up to three months’ worth of your salary will prevent a whole lot of late payments. It will stop you from seeking new credit lines that put a dent on your credit score.


Although your credit score is absolutely crucial to get approved for a loan and to get the best interest rates, you don’t have to be over stressed about the different scoring models in order to impress lenders.

Rather, focus on responsible credit management.

Start from as simple as paying your bills on time and not opening several new credit lines at short intervals.

Once you start doing this, your credit scores will start improving gradually. This mans you’re on your way to the top.

Williams Oleije

Williams Oleije

Williams Oleije is an Inbound Marketer, and a pop culture enthusiast. He's an avid researcher about how digital media is transforming marketing in several industries.

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