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What Most Influences Your Credit Score
30 Jun 2019

What Most Influences Your Credit Score? The Factors to Know

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Do you know what most influences your credit score? There are many key factors that influence your credit score but not all take up the same part. Some of these factors are more influential than others.

Having a credit card on hand is a convenience many people take advantage of. In the United States, 83% of Americans between 30 and 49 years old own a credit card. This information only reveals how credit cards are so commonplace in finance among Americans.

Below is a list of the many factors that most influence your credit score.

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Check out for more on how to improve your credit score.

1. What Most Influences Your Credit Score: Payment History

Money is no light subject and it’s even a more serious one when it involves owing it. When someone asks to borrow from you, one of the first questions that would surface in your mind is, “will I get it back?” Now, you know what lenders and credit card companies think about most when it comes to business.

We base a credit score in part of payment history, taking up 35% of the FICO score. The FICO score is what many major credit agencies use to assess credit risk. They also use the FICO score to determine whether to extend it.

In essence, your payment history is what most influences your credit score. From the elements that determine credit worthiness, payment history has the highest cut. Because of this, make sure you pay off your installment loans on time, unless you want to hurt your score. The reason is that lenders want to make sure you will be able to pay back your debt on time based on your payment history.

Knowing how credit works are not enough to build a good relationship with your lender. Accomplishing your monthly payments is a good start. You also need to be able to pay the amount you owe in full.

If you want to maintain a good credit score, pay your bills on time. Missing even one payment or being late at paying can have a negative impact on your credit score. Most companies see missing a credit card payment to be worse than missing a loan payment.

How late you were in paying also has different effects on your credit score. Were you a month or two months late in paying? The later their money returns, the worse it is for your credit score.

2. Credit Utilization

Do you know how much of the total available credit you have used? How much do you owe on specific types of installment accounts? Software that scores credit like to see that you can be responsible for managing them.

You may think it would be responsible to limit yourself to use only one credit card and pay your balance monthly in full, on time. While the latter is a smart way to stay out of debt, we can’t say the same for the former. Using one credit card for everything can give you higher utilization rates.

The percentage of your available credit that you used is the utilization. For example, you’ve got a credit limit of $100 and a statement balance of $25. Your credit utilization ratio would then be 25%.

We calculate credit usage for individual credit cards and across all your credit cards. Having high utilization rates can be very harmful to your credit score. It’s always better to use less of the total available credit you have.

Many customers with scores over 780 have an average utilization of 5.6% only. Customers with below 600 credit scores have an average utilization of 77.2%. As you can see, less is better.

Remember that credit utilization makes up 30% of your total credit score. Try to keep your credit use below 20% or lower. Borrowers who max out their credit cards are often seen as people who can’t handle debt well.

If your balances become too high, you can still improve your credit score. All you need to do is to pay them down. Watch your debts lessen as your credit score increases.

3. Length of Credit History

Finished paying off an old debt on your credit card? Have you decided that you’re done with that old account? Don’t cut up that plastic yet because it’s good for your credit score.

Some 13% of people who canceled their cards think that it will improve their credit scores. A bigger percentage at 29% have no idea about its effect on their scores and 15% think there is no effect. Only 42% of credit card holders know that it decreases their credit scores.

Think back to how long you’ve had your oldest account. What’s the average age of all your credit accounts? Recent use of an account may also affect your credit score.

Opening a new account can hurt your credit score as it lowers the average age of accounts. Closed accounts can make a significant impact on your credit score. In contrast, an old but reliable account can increase your scores.

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

It’s not bad to open a new account if you want to. It will be better for you to leave your old credit accounts open. Even if you don’t use them, their age will help boost your credit score.

About 61% of Americans have closed or canceled at least one credit card in their lifetime. Often, it’s older and/or wealthier people from the Midwest who close credit card accounts. A smaller percentage of Americans at 37% have canceled two or more card accounts.

4. Opening New Credit Accounts

Although it affects 10% of your total score, new credit accounts have a negative impact on your score. Even though it seems like a small percentage, it can put you in significant financial trouble.

Closing accounts and opening new ones can have a negative impact on your credit score. As stated above, an older credit account has more chances of gaining a good score than a new one. Also, opening many new credit accounts in a short period of time presents a greater risk.

How is a credit score determined with old and new accounts? Lenders look at your credit history most and decide from there how reliable of a borrower you are. If you haven’t had a long credit history, they are taking a risk with you because they don’t know you yet.

Let’s say you opened a new account to get a loan to pay off credit cards. The first thing that happens is the lender makes a hard inquiry or hard pull. Getting a hard inquiry makes your credit score drop a little.

Also, credit score takes into consideration the average of all your credit accounts. This includes your oldest account. If you’ve had only one other credit account for the last 10 years, opening a new one will have a big impact on your score.

5. Credit Mix

Making up another 10% of your credit score is credit mix. This is the different types of credit that you use or have. Credit mix includes mortgages, installment loans, and credit cards.

This factor that affects FICO score is a little vague. Although the percentage it takes up is small, it’s a good way to see how responsible of a borrower you are. Lenders like to see that you can repay a variety of debt products and handle all sorts of credit.

It would be good for you to have loans for different assets like a car, home, or student loan. You can even get to using credit cards for groceries and shopping. The key is to make sure you are able to manage them all.

6. Number of Credit Inquiries

We’ve already touched on this factor earlier under opening new accounts. Every time you submit an application that needs a credit check, this denotes a hard inquiry on your official credit report. Getting a hard inquiry when lenders check all your credit information during the underwriting procedure.

Lenders aren’t fond of seeing hard inquiries on your report. A lot of hard credit inquiries on your account makes you look desperate for a loan.

Hard inquiries also last long in your report. These hard inquiries stay for 2 years on your report. The FICO score only factors in hard inquiries from the last 12 months.

Hard credit inquiries make up another 10% of your credit score. One or two inquiries in the last 12 months on your report won’t hurt your score too much. Having too many within a short period of time is where you fall into dangerous zones.

Be careful not to confuse this with soft inquiries. A soft credit inquiry is when you check your own credit report results. Hard inquiries affect your credit score but soft inquiries do not.

7. What Doesn’t Influence Credit Score

Here are some common myths that people believe affect credit score. One of them is believing that soft inquiries have a negative influence on your credit score. Another is that closing a credit card will improve your score, which in reality does the opposite.

People also believe that a low credit score can lead to never getting approved for anything. A bad credit score makes it harder to get approved, not impossible. You can still get approved with bad credit but you may need to pay a security deposit or higher interest rate.

Some people believe that having money in the bank equates to having a good credit score. Although having good savings habits and good credit scores may have a correlation, banked money is not a FICO factor. You can have money saved in the bank but have a bad credit score still.

Bank balance and employment status don’t affect score but they affect approval rates. Some people also thought that everyone has one credit score. In truth, there are many different credit scoring models so each person has more than one score.

You may think paying a collection account can help from hurting your credit score. In the long run, it will help but it won’t increase your credit score. Once the collection is on your credit report does it only factor into your credit score.

Race, color, religion, and national origin don’t affect your credit scores. Where you live, how much you earn, and participating in a credit counseling program also don’t affect your score. In essence, any information not found in your credit report does not affect your credit score.

8. How to Increase a Bad Credit Score

We’ve talked about what lowers your credit score and what doesn’t affect it. Let’s talk about how you can get yourself out of a black hole of credit debt. The following should be able to help increase your credit scores.

Pay bills on time to avoid negative scores. Remember, payment history is an influential factor in making up your credit score. Pay down debt and reduce credit card balances to lower your credit use ratio.

Make any outstanding payments to avoid a larger impact on your score. Check your credit reports and dispute inaccurate information on your report. Limit new credit requests to limit hard inquiries as well.

Many millennials have trouble keeping good credit scores. It turns out most folks between the ages 19 and 34 have a credit score of 625. Gen Xers had an average score of 650 while baby boomers had 709 credit score average.

It could be that they are too aware of these myths and of their credit scores. It could be that they have higher levels of student debt or have no credit account open. Whatever the reason, many don’t realize the benefits of having a credit card account.

Keep Your Debts Low and Your Score High

That’s it for our guide on what most influences your credit score. We hope we answered any questions about credit score and the factors that influence them. Now, you have the knowledge on how you can keep a good credit score.

For more information on topics like credit cards, loans, and debt, check out our blog page. If you have other questions about financing that you can’t find on our blog, get in touch with us and we’ll be happy to answer any questions you have.