What Affects Your Credit Score? 8 Critical Factors

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Contributor, Benzinga
July 31, 2023

Your credit score is a three-digit number that lenders look at to determine your interest rate and loan amount. A higher credit score can save you thousands of dollars over your lifetime. Any extra points can make a big difference, but not everyone knows what affects their credit scores. Knowing how the FICO scoring categories work can help you make better financial decisions that improve your credit score. 

What Factors Can Affect My Credit Score The Most?

While several factors affect your credit score, some are more important than others. The FICO scoring system has several factors to remember, but it gives preference to some factors over others.

1. Payment History

Payment history reflects your ability to keep up with financial commitments, such as loans and credit card debt. It is the largest component of your score and makes up 35% of your total credit score. Late payments will hurt your credit, so it is important to make all of your payments on time. 

The best way to improve your payment history is to catch up on late payments and avoid making late payments in the future. Reviewing your expenses and trimming unnecessary costs can make it easier to build up a robust payment history. 

2. Credit Utilization

Credit utilization measures your borrowed money as a percentage of your credit limit. For instance, if you owe $1,000 on your credit card and have a $5,000 credit limit, you have a 20% credit utilization ratio.

Keeping credit utilization low will improve your score. A 30% credit utilization ratio or lower will increase your score, but a utilization ratio below 10% is ideal. You can improve your credit utilization ratio by getting a higher credit limit and paying off your debt.

3. Credit Age

With age comes experience. The FICO scoring system takes this concept to heart and allocates 15% of your credit score to its length. Keeping multiple credit lines open can demonstrate more expertise in managing debt than the average person. Consumers should keep their old accounts open even if they do not use them anymore. Adding a subscription to an old credit card can keep it active, build your credit history, and not make it take up too much of your monthly spending.

4. Credit Mix

Your credit mix makes up 10% of your FICO score and reflects your ability to juggle multiple types of debt. If you have credit card debt, a personal loan, and mortgage payments, you have a diverse credit mix. You shouldn’t go into multiple types of debt for the sole purpose of building a credit mix, but some people end up with multiple types of debt anyway. 

5. New Credit Applications

New credit applications affect 10% of your credit score. If you have not applied for new credit for a while, your credit score will be fine. You can still get new credit without impacting your score if you get a soft credit pull. Soft credit pulls are less extensive and do not affect your score.

New credit applications will hurt your score by a few points if the creditor conducts a hard credit check. These credit checks are more extensive, but it is easy to recover from them. You should sparingly apply for new credit. If you have to apply for new credit, consider submitting several applications at the same time. Multiple credit applications within a short amount of time will only trigger one hard credit check. If you space out your applications too far, you may incur multiple hard credit inquiries.

7. Credit Inquiries

Hard credit inquiries will hurt your score, but they are often necessary to get financing for important financial products, such as mortgages, auto loans, and personal loans. Soft credit checks do not affect  your credit score and typically come from lenders offering lower loan amounts. You can get a free copy of your credit report each year from each of the three major credit bureaus. Requesting a copy of your credit report does not trigger a hard credit check and gives you the opportunity to check your score.

8. Outstanding Debts

Outstanding debt will hurt your credit score due to its impact on your payment history and credit utilization. You can resolve outstanding debts by contacting your creditors, negotiating payment plans, and getting back on track. It is possible to improve your credit score despite previous financial challenges.

How Can I Improve My Credit Score Using These Factors?

Knowing what goes into a FICO score makes it easier to rack up points. You can use these strategies to enhance your credit score.

Pay Your Bills On Time

Consistently paying your bills on time is the best way to improve your credit score. Creditors look at your score to gauge your ability to make on-time payments. Therefore, it makes sense that payment history makes up 35% of your score. Paying your bills on time will also improve your credit utilization ratio, a component that makes up 30% of your credit score.

Late and missed payments can have a significant impact on your score and bring you down by several points. These late payments become worse if you let them grow over time. Trimming your expenses and increasing your income through side hustles and career advancement opportunities can make it easier to keep up with your payments.

Reduce Credit Card Balances

A lower credit card balance makes it easier to claw your way out of debt. Interest will compound at a lower rate, and you will improve your credit utilization ratio in the process. Credit utilization makes up 30% of your credit score, and a utilization ratio below 30% will help you see credit score gains. Getting your credit utilization ratio below 10% will turbocharge your credit score growth and set you on the path to having a great credit score. Staying on top of expenses and making it a point to pay more than the minimum balance will help to reduce your credit utilization ratio. If you have the financial means, you should always pay off your credit card balance in full at the end of each billing cycle. 

Establish A Long Credit History

A long credit history demonstrates experience and can help build your credit score. Keeping old credit lines open and adding one subscription to old credit cards can keep them active and improve your score. Consumers with limited credit history can easily get started with a credit builder loan or a secured credit card. These financial products have more generous requirements than unsecured loans and credit cards. They are specifically for people with bad credit or no credit who want to build up to great credit scores.

Diversify Your Credit Mix

Taking out different types of credit, such as credit cards, mortgages, and loans, can improve your credit score. Having multiple types of debt tells lenders you can juggle more obligations, but you shouldn’t rush to get into debt just for your credit mix. You should assess your monthly budget to see how much you can afford and wait for a time to borrow that makes sense.

Limit New Credit Applications

Applying for too much credit will hurt your credit score due to hard credit checks. However, if you must apply, send out a flurry of applications within a very short time frame. Paying off your existing debt will make you less dependent on applying for new credit.

Embark on Your Credit Building Journey

Building credit is a worthwhile journey that can help you save thousands of dollars over your lifetime. A higher credit score grants you more opportunities, such as higher loan amounts and lower interest rates. Payment history is the most important factor in your credit score, and focusing on this area can make everything else fall into place.

Frequently Asked Questions


Does closing a credit card affect my credit score?


Closing a credit card can hurt your credit score because you are removing credit length from your credit history. It can also hurt your credit utilization ratio if you have zero debt on the card.


Can late payments harm my credit score?


Late payments will harm your credit score. Payment history makes up 35% of your credit score, and it’s important to protect your payment history.


Will checking my own credit report impact my credit score?


Checking your own credit report will not impact your credit score. Each credit bureau lets you check your credit report for free once a year.

About Marc Guberti

Marc Guberti is a personal finance writer passionate about helping people learn more about money management, investing and finance. He has more than 10 years of writing experience focused on finance and digital marketing. His work has been published in U.S. News & World Report, USA Today, InvestorPlace and other publications.