Whether it helps you qualify for a new credit card or secure the best interest rate on your mortgage, your credit score has a big impact on your finances.
There are several types of credit scores, but the FICO Score, which is the most common and likely the one you know, is the one most people use. Its range is from 300 to 850. Anything less than 580 is considered âpoor,â and âgoodâ scores start around 670.
But what are the five things that make up your credit score? Here’s what you need to know about each one and how much they count toward your score.
Your credit score is one of the most important numbers in your financial life. It determines whether you can get approved for credit cards, loans, mortgages, rental applications, and more. It also influences the interest rates you’ll pay.
This is why it’s so important to know how your credit score is calculated. Once you know the main factors, you can work to improve your credit over time.
In this comprehensive guide we’ll cover
- What is a credit score and why it matters
- The 5 main factors that affect your score
- How each factor is weighted
- Tips to improve each factor
- Common credit score myths
- How to check your credit score
What Is a Credit Score and Why It Matters
A credit score is a three-digit number that is based on how well you pay your bills and how much credit you have. More points mean better grades. Scores range from 300 to 850.
The most commonly used credit scoring model is the FICO score. This is the score that most lenders and creditors look at when deciding whether to approve you for credit and at what terms.
Having a higher credit score can mean:
- Getting approved for credit cards and loans more easily
- Qualifying for lower interest rates, saving you money
- Not having to put down security deposits for utilities, cell phone plans, etc.
- Being able to rent an apartment more easily and potentially paying lower deposits
A low credit score, on the other hand, can really limit your choices and make it more expensive to borrow money.
That’s why it pays to understand the key factors that affect your credit score and work on improving them over time.
The 5 Main Credit Score Factors
When figuring out your FICO credit score, five main types of information from your credit report are used. Each category has a different weight based on how much it affects your ability to responsibly pay back your debts.
Here are the five main factors that affect your FICO score:
1. Payment History (35%)
Whether you’ve paid your bills on time is the single most important factor affecting 35% of your credit score.
Paying late, having an account sent to collections, or declaring bankruptcy can severely hurt your score. The more recent and frequent the late payments, the bigger the damage to your score.
Tips to improve:
- Pay all bills on time, every time. Set up autopay if it helps.
- If you have any late payments, get current and stay current.
- Wait for negative information to age. Its impact lessens over time.
2. Credit Utilization (30%)
This refers to how much of your available credit you’re using. Owing a lot relative to your credit limits makes lenders see you as a risk.
Experts recommend keeping utilization below 30%. Below 10% is even better.
Tips to improve:
- Pay down balances, especially on high-limit cards.
- Ask for credit limit increases on existing cards.
- Open a new account if needed to increase total limits.
3. Credit History Length (15%)
Your score improves over time as your credit history ages. Lenders like to see long, established accounts.
This considers your oldest account, newest account, and average account age.
Tips to improve:
- Keep old accounts open (unless they have fees).
- Allow credit history to age by keeping old cards open.
4. Credit Mix (10%)
Lenders like to see you can handle different types of credit, like installment loans and revolving credit cards.
Tips to improve:
- No need to open accounts just to add mix. Doing so can lower your score initially.
- Mix will improve naturally as you take out loans and build your profile.
5. New Credit (10%)
Opening a lot of accounts in a short period can signal risk and hurt your score a few points. Too many “hard inquiries” from applying for many new accounts can have a similar effect.
Tips to improve:
- Apply for new credit only as needed.
- Note that rate shopping for a certain loan type only counts as one inquiry.
- Reach for pre-qualification which is a soft pull on your credit before applying.
Weighting of Credit Score Factors
As mentioned earlier, the five factors above are not equally weighted in determining your credit score. This chart summarizes the weighting of each factor:
| Factor | Weight |
|---|---|
| Payment History | 35% |
| Credit Utilization | 30% |
| Credit History Length | 15% |
| Credit Mix | 10% |
| New Credit | 10% |
As you can see, payment history and credit utilization together account for a full 65% of your score. Having good payment patterns and low balances relative to limits is absolutely crucial for a good credit score.
The other factors have less impact but are still important. Managing your credit responsibly over time will boost all five categories.
Common Credit Score Myths
There are a lot of myths and misconceptions about what does and does not affect your credit score. Here are some common ones:
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Myth: Your income level affects your score.
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Fact: Income isn’t a factor at all. But you do need to show sufficient income to get approved for credit.
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Myth: Just having lots of credit cards hurts your score.
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Fact: The number of accounts is not important, only how responsibly you manage them.
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Myth: Checking your own score lowers it.
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Fact: Checking your own score has no impact. Only inquiries from lenders when applying for credit may lower it slightly.
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Myth: Closing old credit card accounts helps your score.
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Fact: Closing old accounts actually hurts your score by reducing the average age of your accounts. Leave them open.
The main takeaway is that responsible management of credit—making payments on time, keeping balances low, and letting your history age—is what really matters. Not myths about how many cards you have or other factors.
How to Check Your Credit Scores
To monitor your credit scores and see the impact of your financial habits, it helps to check your scores periodically from a reputable source. Here are some options:
- From your bank or credit card company websites
- As part of your free credit reports from AnnualCreditReport.com
- Using a free app like Credit Karma
- Purchasing your FICO score from MyFICO.com
Checking your own score does not hurt your credit, so feel free to do it as often as you want to monitor changes.
Putting It All Together
Now you know what goes into your credit score and you can start taking steps to improve it! Focus first on payment history and lowering credit utilization, as those two factors have the biggest impact. Over time, your responsible habits will also boost the other factors.
Be sure to check your credit reports for errors and monitor your scores regularly. Understanding and improving your credit score takes diligence, but it’s one of the most important things you can do for your overall financial situation. With good credit, more doors will open for you.
Length of your credit history (15 percent)
Your credit history includes the length of your oldest account, the age of your newest account, and the average age of all your accounts put together. This tells lenders how long you’ve been responsible with your credit. In most cases, the longer your credit history, the higher your score. If you want to cancel a card you’ve had for a long time, you might want to think again.
Your payment history (35 percent)
You probably already know that paying your bill on time each month is a good credit card habit to build. But did you know that your score could go down if you don’t pay a bill on time?
If you miss your due date by only a day or two, the damage will likely be minimal, although you may be charged a late fee (many companies wonât report a late payment to a credit bureau until itâs 30 days late). Plus, when deciding how missed payments will affect your score, FICO considers other factors such as how late you were, how much was owed, how recently you missed the deadline and how many times youâve been late in the past.
If youâre so late with a payment that it goes to collections, expect an even bigger ding to your score. Because youâre not always notified when this happens, its a good idea to regularly check your credit report, which you can do by requesting a free copy from each of the three major credit bureaus (Equifax, Experian and TransUnion).
Credit SCORE Explained: 5 Factors That Impact Your Credit Scores
FAQ
What are the 5 factors of a credit score?
Five things that make up your credit scorePayment history – 35 percent of your FICO score. The amount you owe – 30 percent of your credit score. Length of your credit history – 15 percent of your credit score. Mix of credit in use – 10 percent of your credit score. New credit – 10 percent of your FICO score.
What are the 5 C’s of credit?
The five C’s of credit are Character, Capacity, Capital, Collateral, and Conditions. These factors are used by lenders to assess a borrower’s creditworthiness when evaluating loan applications.
What are the 5 major factors that these companies use to determine a credit score?
Your payment history, the amount of debt you owe, how long you’ve had credit, new or recent credit, and the types of credit you’ve used are the main things that affect your credit score.
How do I find out what is affecting my credit score?
To understand what’s impacting your credit score, you can review your credit reports, use free online tools, or consult with a credit counselor.