What Affects Your Credit Score?

Written by Kim PinnelliUpdated: 22nd Dec 2020
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Your credit score is one of the most important factors in your adult life. A good credit score gets you new loans, and maybe even a new job or better insurance rates. A bad credit score can ruin your life.

But what affects your credit score? Check out the top factors that affect it the most.

Factors That Affect Your Credit Score (The Most)

A lot of factors affect your credit score but knowing the way (amount) they affect it is important. For example, a late payment is devastating to a credit score, whereas a new credit inquiry may only hit your credit score a few points.

Here’s what you must know.

#1. Payment History (35%)

Your payment history is a record of how well you make your payments on time. This doesn’t mean if you miss your credit card due date by a day or two. While that’s not pleasant (thanks to late fees), it won’t hurt your credit score.

The credit bureaus only know about late payments when you’ve crossed that 30-day threshold. They track all payments in 30-day increments.

For example, if you miss your credit card payment by 30 days, you get hit for a 30-day late. If you pay it before you hit 60-days late, you only get hit for the one 30-day late. But, if you don’t pay it, you’ll get hit for a 60-day late which is even more devastating.

Keep in mind, your payment history is the largest factor of your credit score. It accounts for 35% of your score, so even one late payment can cause serious damage.

#2. Credit Utilization (30%)

Just because you have a credit line doesn’t mean you can spend it all. The credit bureaus penalize you if you have more than 30% of your credit line outstanding. So for every $1,000 credit line, you shouldn’t have more than $300 out at once.

Fortunately, you can turn your credit utilization issues around quickly just by paying your debt off. Your credit score should improve almost immediately, unlike the damage a late payment causes.

#3. Credit History (15%)

Your credit ‘age’ or length of credit history is important too. Just like anything in life, the more ‘experience’ you can show, the more others learn about you. When lenders look at your credit score, they want to know how long you’ve been established.

There’s a big difference between a borrower with less than a year of credit history and one with 10 – 15 years of credit history.

It’s easy to help your length of credit history – don’t close old accounts. Unless you have a serious reason, like an unaffordable annual fee or you have a secured card, leave your accounts open and let them age.

#4. Credit Mix (10%)

The credit bureaus like it when you ‘mix your credit up.’ In other words, don’t carry all credit cards or all installment debt. Have a mixture of both – it shows much more financial responsibility this way.

#5. New Credit (10%)

Every time you apply for new credit, it dings your credit score slightly. It doesn’t have a dramatic effect, but it may drop your score temporarily. The effects usually wear off after a few months.

Hard Inquiries vs Soft Inquiries

Not all credit inquiries affect your credit score. If you apply for new credit, like a credit card, it’s a hard inquiry. But, if a credit card company pre-approves you for a credit card, it doesn’t affect your credit score. That’s a soft inquiry.

Here’s an easy way to look at it. If you actively apply for new credit (not a rate quote), it affects your credit score. But if you pull your own credit or a company checks your credit and you didn’t apply for new credit, it’s a soft inquiry and doesn’t affect your credit score.

Learn More: Hard Inquiries vs Soft Inquiries

Other Items That May Affect Your Credit Score

Many factors affect your credit score beyond your payment history or credit lines. Some factors you can help and others may be outside of your control.

Reporting Errors

Errors happen all the time. If you don’t catch them, they could hurt your credit score considerably. Monitor your credit report for misinformation and fraudulent accounts that don’t belong to you.

Learn More: Best Credit Monitoring

Closing a Credit Card

Like I said above, closing a credit card shortens your credit length, which hurts your credit score. The only way to fix it is to wait it out and let your other credit lines ‘age.’

Not Paying Rent

Some landlords report rent, but not many. But, if you pay for a rent-reporting service and you pay your rent late, you hurt your credit score.

Missing a Bill Payment

Missing any bill payment for more than 30 days can hurt your credit score, including utility bills. But even bills that don’t get reported to the credit bureau can end up ruining your credit score if the bill goes to collections as most collection agencies report their accounts.

Asking for a Credit Limit Increase

Asking for a credit limit increase can help and hurt your score at the same time. It may help it by decreasing your credit utilization rate (the higher your credit limit, and the less credit you use, the lower your utilization rate).

It may hurt it if the creditor pulls your credit to make sure you qualify for the higher credit limit. Not all lenders pull your credit, so it’s worth asking before you ask for a credit limit increase.

Defaulting on Accounts

Defaulting on accounts is the worst way to hurt your credit score. This may mean collection accounts, or it could be a repossession or bankruptcy. Any public record and/or negative credit account has serious (and negative) consequences.

What Doesn’t Affect Your Credit Score?

The Consumer Credit Protection Act prohibits credit scoring agencies from using any of the following in their credit scoring:

  • Race
  • Religion
  • Nationality
  • Gender
  • Marital Status

Quick Tips to Improve Credit Score

You should always be working to improve your credit score. Some things change it quickly, and others take time. The key is to have regular ‘good’ habits to have the most positive effect on your credit score.

#1. Pay Your Bills on Time

Don’t miss your payment due dates. If you do, pay the bill as soon as you remember. If it’s more than 30 days late, ask the lender for a reprieve if it’s your first time. You never know when they might oblige and not hit you for a late payment.

#2. Pay In Full

Rather than carrying a credit balance, pay it off in full. In other words, only charge what you know you can afford.

#3. Build Credit Responsibly

Don’t assume you need every bit of available credit. Only apply for credit you need and can responsibly handle. Getting in over your head only makes it hard to stay afloat and hurts your credit score in the end.

Learn More: How to Build Credit

#4. Credit Repair

If all else fails, try credit repair. If you have a lot of negative credit and can’t dispute it yourself or don’t know where to start, the experts can dispute your credit for you. They know what to look for, what to argue, and how to help improve your credit score.

Learn More: Best Credit Repair Services

Bottom Line: What Affects Your Credit Score

Knowing what affects your credit score is important. You’ll make smarter financial decisions or at least think about the effects before something happens.

When life happens (and it will), you’ll know what you need to do to fix the issues, whether late payments, overextended credit, or something worse.

More Resources:

Kim Pinnelli
Kim Pinnelli

Kim Pinnelli is a Senior Writer, Editor, & Product Analyst with a Bachelor’s Degree in Finance from the University of Illinois at Chicago. She has been a professional financial writer for over 15 years, and has appeared in a myriad of industry leading financial media outlets. Leveraging her personal experience, Kim is committed to helping people take charge of their personal finances and make simple financial decisions.