Understanding Your Credit: 5 Factors That Affect Your Credit Score

5 Factors of a Credit Score
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Various factors can affect your credit score; A single missed payment can leave individuals with a bad credit report in a short period of time, and it can take months to repair that score. Thus, as a frequent loan holder or even a beginner, you must not forsake these crucial factors while maintaining your credit score. The key to a good credit score is a long credit history with on-time payments and low credit card balances.

To learn about what can adversely affect your credit score, you must first learn about what makes your credit score change and keeps it going. A credit score is a digital statement that decides whether you are fit for a loan, a credit card, and lower interest rates.

A good credit score can help you achieve a better interest rate, big loan offers on a personal loan or auto loan, and credit cards with substantial limits, but how to maintain that kind of credit file? By monitoring these five factors, you can quickly build a credit profile that loan lenders will entrust and prioritize. 

5 Crucial Factors Affect Your Credit Score

Why do money lenders thoroughly investigate your credit score? A credit score tells them the history of your past loans and how you performed while fulfilling the installments. 

Your credit score can lie between 300-850 depending on your performance; the clearer your loan history is, the better your credit score. This number allows lenders to have a quick study of your previous loans, the number of open accounts, and how willingly you will pay on time. The major credit bureaus all use a formula to determine your credit score.

A credit score of 750-850 ensures the lender that the individual will pay back the debts and on time. Your credit score also determines the interest you will be paying for the sum of money. 

A FICO score lower than 600 might also get you a loan, but chances are you will be given high-interest rates. This is because 600-650 indicates a poorly managed credit report which leaves the lender with a significant risk of late payments or no payments at all. 

If you can wait and bring your credit score up to 750-800, you will be saving a lot of money on interest. 

Financial institutions mainly refer to FICO scoring and the three major credit bureaus to evaluate your credit history and score. You will want to know your credit history and credit score before applying for new credit.

5 Factors That Affect Your Credit Score

Payment history

Payment history holds 35% of weightage in your overall credit score report and is one of the main factors in determining your score. The most crucial question lenders have ‘if you can pay back the money you took?’ Nothing can better illustrate your performance than your payment history record. 

If you have several open accounts (multiple loans) with a long history of making payments on time, the chances are your loan lender will entrust you with minimum interest rate. 

Unless you default, a defaulter is a person who couldn’t submit the payment on time. Fortunately, there is still a chance that you might get a loan. 

While checking your payment history for the credit score, your lender will take these things under consideration.

  • How many installments did you miss/delay? A single late payment will affect your credit score but not adversely. The bigger the number of missed or late payments, the fewer the chances of getting a loan with low-interest rates. 
  • How late were you while submitting the installment? Did you miss a day, a week, 30 days, 60 days, 90 days, and so on. A day delay can be compromised with the particular bank/creditor, but it will affect your credit score, nonetheless. Two months is a long time for an overdue installment, and it will affect your credit score negatively and adversely. 
  • Were you in contact with the bank assuring them repayment of the missed installment, or was the bank oblivion of your whereabouts? A contactless delay allows your bank to report you as an offender. You might as well be called in for custody, settlement, etc. 
  • Have your accounts been sent to debt collections? Lenders hire a debt collector/collection agency/law firm when you are way behind your loans. This usually happens when it’s been four months or more that you haven’t paid the debt. Collection records can decrease your credit score with a huge impact. 
  • Do you have charge-offs? A charge-off is a tag given to an individual who has failed to pay back the remaining debt for several months by the moneylender. The lender stops charging from your unpaid account and signals future lenders with the tag ‘charge-off.’
  • Have you ever had a debt settlement? Were you bankrupt? 
  • Are you charged with a lawsuit? These are some significant concerns that will affect your credit score negatively for a long, long time. 

That being said, a credit score is repairable and changeable. Although your credit score might be low right now, repaying all your debts will gradually enhance your reports. 

So, don’t feel completely lost and start paying your debts, bills, credit cards on time. 

Amount of debt

The number of loans on your account, the value of these loans, and the total of money that you are responsible for; hold 30% of weightage in your credit score. 

Your account’s status: The amount of debt includes your credit card history, the number of loans you are managing, and your credit utilization ratio. Despite paying your debts on time, the credit score closely looks at the activity going on in your account. Are you barely fulfilling the payments? Is your account close to zero after making your payment? These things matter and react to your credit score. 

Second, credit card: If used rightly, credit cards can help your credit score hype real fast, but a bad credit card history can ruin that score. While using a credit card for your benefits, keep these points in mind:

  • Only use 30% of the credit your credit card offers. More than 30% can affect your credit score. For instance, if your limit is $10000, use $3000 and pay it back on time as well. 
  • Don’t let your credit card go unused. It would help if you had some activities going on and around your credit card. These activities include using the money credit card offers (under 30%) and paying back. 
  • It shouldn’t be a one-time transaction. Continue to use your credit card as often as you can. These transactions enhance your credit score. 
  • Don’t let your credit go untouched. That is, 0 balance doesn’t enhance your credit score. Don’t overuse it, but use it enough to show transactions.

Length of credit history

How long have you had the credit cards and the loans? A more extended history of credit cards and loans without late dues and bounced installments will positively upgrade your credit score. A shorter loan and credit card duration is also good enough as long as you are paying the debts on time. 

The longer and healthier your relationships are with other lenders, the more future lenders will entrust you. Thus, it’s always financially advised to loan a particular item than to buy it with full payment. A good loan history will lend you a more significant credit. 

A credit card with 2-3 years of age will have a positive impact on your good score over a new credit card that is 5-6 months old. 

  • Keep the credit card intact even if you don’t use it. Don’t close the account. 
  • Closing an old credit card will reduce your credit score drastically. 
  • Use the credit card up to 30% of its allowance. 
  • Make small transactions. 
  • Don’t hold the card at 0 balance for long periods of time. 

The length/age of your credit card holds 15% of weightage while calculating the credit score. A credit card isn’t just a monthly allowance that you can use but also a way to upgrade your credit score. Use it wisely.

New accounts and credit mix

  • How many cards and accounts do you hold? Do you have more than four cards and are planning to apply for yet another card? Although keeping enough cards improves your credit score, new cards reduce your account’s overall age, decreasing the credit score.
  • Are you planning to open yet another account? Every time you apply for a new card, the lender will inquire about your history, either a hard inquiry (hard pull) or a soft inquiry. A hard inquiry allows the lender to see through your credit score report and simultaneously charges some points off your credit score. A soft inquiry enables the company to inquire without demolishing your score. 
  • Points reduced due to hard inquiries are temporary. 
  • When was the last time you opened an account? The time difference between opening a new credit and account matters. The lender will check for the reason behind opening so many accounts. 
  • They might also believe that the individual has a poor financial state and needs a card to clear the outstanding debts. It is a risk call for creditors. 
  • Do you have a good mix of different types of credit?

So, make sure all your cards are outshining with a healthy credit limit and no dues. New credit accounts for 10% weightage in your overall credit score. FICO makes sure you apply for a new card for credit score purposes or healthy affairs rather than for clearing debts. 

Suppose your overall credit utilization ratio exceeds 30%. In that case, you will most likely see a decline in your credit score because FICO finds it risky for an individual to apply for a new card when all your past accounts are barely being appropriately managed. 

Please note: FICO also looks at the type of credit you are accountable for? Are they mixed credit accounts, including mortgage, store cards, business cards, credit cards, shopping cards, loans, etc?

Mixed credit favors your credit score, but that shouldn’t force you into getting unnecessary loans that you don’t need.  

The number of credit inquiries

Every time you submit an application for a loan or credit cards, the lenders check through your credit score either through hard pull or soft inquiry. Whenever a lender checks through your credit score report, an inquiry is sent to your FICO scoring system that a credit-based application has been forwarded. 

A couple of inquiries do not harm your credit score, but the minute you pass more than 2-3 applications within a brief period, your credit score starts to get affected and can be an important factor. 

  • With every additional inquiry, it indicates that the last application didn’t get approved.
  • Or, it did, but you need more money for maintaining other things. 

Back-to-back inquiries either indicate failed applications or too much debt. Failed application or an application that the lender refused negatively affects your credit score because the lender doesn’t find you fit for the loan for some reason. 

Thus, it’s essential to choose your lenders/banks wisely before applying for a loan. Apply for a loan when your credit score history doesn’t scare lenders away. 

Back to the point, too many inquiries will deflate your credit score. FICO only stores the data of an inquired application for 12 months. After 24 months of applying, FICO will remove it from the records altogether, and it will stop including it on your credit score history. 

These inquiries’ weightage is 10%, so don’t apply for every loan or credit card to increase your credit score. 

Factors that don’t affect your credit score

Credit scores and lenders/creditors are two different things. While your occupation, salary, bank balance will be taken into account by the lender to check if you will pay back, your credit score doesn’t usually look into these matters. 

As long as the above criteria are met, your credit score doesn’t mind your occupation, salary, marital status, age, etc. 

  • Occupation: Lenders approach people who are well-settled with a good salary/business and monthly income. A credit score doesn’t. As long as you maintain a good credit line with on-time payment, your credit score will read 750-800. Lenders do consider a good credit score more than your occupation. 
  • Salary: Low salary might scare lenders, but a credit score will reassure them.
  • Marital status: Some of the lenders will dig into your family and if you have enough stability around the family to support them and the loan together. Your familial situation is not a red flag to your credit score.
  • Age: Will you live well to pay off the debts? As harsh as it may sound, some lenders are at a more considerable risk of losing money so that they may consider your age. 
  • Family/number of children
  • Individual’s locality
  • Past employment and employers 
  • Debit cards and their usage
  • Bank balance

FICO officially doesn’t consider these as the counting essentials while calculating your credit score, but other scoring methods might do. You can always convince your lender with the credit score if these things turn off the lender.

Types of accounts that affect your credit score:

Credit score will always revolve around your debt and the medium of debt. These debts can be either installment loans or revolving credits. 

Unlike installment loans, revolving accounts usually account for your credit cards, where you decide the monthly charges, expenditure, balance, and payback. Credit cards come with a fixed limit for every individual, but the rest is in your hands. 

Installment Loans 

Installment credits/loans are when you borrow a set amount of money from the lender and set a fixed installment every month on a fixed date over a predetermined amount of time. These types of loans include mortgage, car loans, personal loans, or smaller accessory loans. 

For an installment loan, you may have to deposit a down payment (5-20% of the total cost of the loan), interest rates, closing rates, fees, etc. 

  • If you cannot pay back the mortgage, the home itself will act as collateral. Your bank can take away the home for not making payments. Mortgage loans are long installment loans with 30-40 years of relationship between the bank and the individual. The loan period can depend on your house, the overall loan cost, etc. 
  • An average-priced car loan takes a shorter period of 2-3 years. A car loan will also require a down payment of 30%. Please note: the percentage of a down payment can depend on your credit score, and you may be charged with a higher down payment for a lower credit score (700 compared to 800)
  • Personal loans can be taken for personal needs like an emergency financial situation, education, children, etc. Personal loans usually have higher interest since they are not secured. 

Revolving Credit

Revolving credit cards include credit cards and home equity credits. Both these credits are not fixed. That is, you can decide the amount to be used, the balance you can spend, and the balance to restore every month. 

You can pay off the balance entirely in the same month, or you can take your previous balance to the next month. This extended period of balance will charge more interest rates. 

Not only this, with your fluctuating credit score, your credit cards will change, too. If your credit score rises, the credit card limits will rise as well. If your credit score decreases, the limit will decrease, and interest will increase. 

Mainly, revolving cards are used to show FICO your casual payment history, including home bills, shop bills, additional home expenses. When you use a prepaid card (debit card), your credit score won’t change because debit cards do not have lender’s money. On the other hand, credit cards are not prepaid; you will need to pay back the banks that approved you for this card every month. 

How you use the credit card and payback to the banks affects your credit score. So, use wisely. 

Even if you can prolong the balance to next month, it’s best to clear all your revolving debt within the month to protect your credit score. 

5 Factors that Affect Your Credit Score

How to improve your credit score?

You must have deciphered how to keep your credit score high by reading the above factors that affect your credit score. A quick summary as to what to do to increase your credit score history:

  • First, by taking a loan or credit cards from legit lenders, you may improve your score. 
  • If your credit score is relatively new, you might not get home loans or more prominent loans. So, start with a small personal loan/equity loan. 
  • For credit cards, you must have a well-performing bank account that the bank authorities can trust. Initially, your credit card limit will be minimal, but thrive to enhance your credit score and thereby your credit card limit. They are inter-connected.
  • Pay your debt on time and never be late if you are late for some reason, payback within 30 days, and contact the lender. 
  • Don’t overuse your credit limit as advised by the lenders. If they say 30% of your overall available credit, then don’t go overboard. 
  • Your credit utilization ratio must not exceed 15%-30%, depending on the lender. 
  • Don’t open too many accounts and do not inquire about too many loans or cards. Do not more than 2-3 inquiries.
  • Don’t swing for a hard pull. Always make a soft inquiry first and then apply for a loan that cannot be rejected. 
  • If you have a bad credit score, do not apply for the loan. Wait until your credit score repairs, and then apply. It’s better to wait than to get rejected. A rejected loan will decrease your score even further. 
  • To correct your credit score, undo the mistakes that destroyed numbers. 


In the end, don’t intentionally try to improve your credit score by taking big loans that you might not be able to pay back. Your credit score can also be increased with small loans, timely payments, and a good credit utilization score. 

Try to maintain and keep these factors at bay while correcting your credit score. Always remember, a credit score is repairable. Don’t pressure yourself over a bad score; you can always change it in your favor through timely payments and responsible use of your credit.  

A credit score can take a more extended period to move higher, but it’s not difficult to attain. So, before applying for a loan, correct your credit score!

Hiring a credit repair company may be helpful if you need to raise your score quickly. 

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Tricia Snow

Tricia Snow has worked in the banking and financial services industry for over 20 years. She has helped 1000's of clients obtain the financing they needed to purchase their dream home or start their own business.

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