Whether you’re in the process of rebuilding your credit or simply want to gain a better understanding of how credit works, learning the factors that affect your credit scores is a great place to start. With that said, understanding the factors that don’t affect your credit score is also helpful to know, so we’ve included a section for just that towards the end of the article.

Before we review factors and their impacts on your credit, it’s crucial to review the existing credit scoring models and their differences. The most commonly used models today are FICO, VantageScore 3.0, and VantageScore 4.0. Here’s an excerpt from our article FICO vs. VantageScore Credit Scores that walks you through how each model calculates your score:

How Your FICO Credit Score is Calculated

  • 35% payment history
  • 30% amounts owed
  • 15% length of credit history
  • 10% types of credit/credit mix
  • 10% credit inquiries/new credit

How Your VantageScore 3.0 Credit Score is Calculated

  • 40% payment history
  • 21% age and type of credit
  • 20% percent of credit used
  • 11% total balances/debt
  • 5% recent credit behaviors and inquiries
  • 3% available credit

How Your VantageScore 4.0 Credit Score is Calculated

  • Extremely influential: total credit usage, balance, and available credit
  • Highly influential: credit mix and experience
  • Moderately influential: payment history
  • Less influential: age of credit history
  • Less influential: new accounts

As you can see, each model places varying weights on different factors when calculating your credit score. So, if you have a slightly different score for each model, don’t worry – it’s to be expected.

Let’s take a closer look at each of the factors that affect your credit below.

Payment History

Before approving you for a loan or a line of credit, lenders want to know that you’re a responsible borrower who will pay them back on time. What’s the most telling factor they can look at to determine you’re trustworthy and reliable?

You got it – your payment history. Proof that you’ve repaid previous lenders in full and on time not only has a significant impact on your scores, it’s also the key to getting approved for any credit you’re looking for.

For both FICO and VantageScore 3.0 models, your payment history has the greatest influence on your credit score. The best thing you can do to improve your credit for these models is to make on-time payments consistently.

Read more: 6 Tips for Building Your Credit

Factors that can negatively affect your payment history
  • Making late payments. Even one late payment can drop your credit score dramatically, and the later you pay, the more negative the impact will be. Always do your best to pay your bills on time, even if you can only afford the minimum payment.
  • Having accounts sent to collections. Most lenders are looking for safe bets when it comes to the borrowers they lend to. Potential lenders could see collections on your credit report as a major red flag that you may not repay them.
  • Settlements, bankruptcies, and foreclosures. Similar to having accounts sent to collections, anything on your credit report that signals you could have trouble paying lenders back will make them think twice about lending to you.

One thing to note: Time plays a significant role in how severely these factors could affect your credit scores. If you had accounts sent to collections a few years ago but have had an excellent payment history since then, lenders are usually more likely to consider your more recent behavior. In other words, time (and responsible use moving forward) can heal even the deepest credit wounds.

Amounts Owed

Another major factor that affects your credit: your credit utilization ratio. This ratio measures the level of debt you have compared to your available credit limits.

To calculate your credit utilization ratio, simply add up the balances on your credit cards then divide them by your added-up credit limits. Let’s say you have two credit cards: one has a balance of $2,000 and a credit limit of $5,000, the other a balance of $3,000 and a credit limit of $10,000.

Total balances: $5,000

Total credit limit: $15,000

Credit utilization ratio: .33, or 33%

Lenders see low credit utilization as a sign that you’re keeping your spending in check and avoiding overspending. The fact that you have access to more money but aren’t using it is a good indicator that you’re using your credit responsibly.

As you can imagine, lenders may believe borrowers with high credit utilization ratios already have more debt than they can effectively manage. If a borrower is using $9,500 of their $10,000 in available credit, it’s not a far leap to assume they may have difficulty repaying an additional financial obligation.

A rule of thumb

Most financial experts agree that using less than 30% of your available credit limit is ideal for your score and borrowing potential, but it’s not a hard-fast rule. Typically, the less you owe the better.

Keep in mind: While owing less is better, having a $0 balance on your accounts won’t necessarily be helpful for your score. Lenders want to see that when you borrow money, you pay it back. If you never borrow, there won’t be any history for them to look back on.

 Length of Credit History

Why is the length of your credit history important for your score? It’s simple – the longer your history of using credit, the more experience you have using it.

It makes sense – imagine you’re a lender trying to decide between two borrowers. One has made on-time payments throughout their six-year credit history, while the other has no history at all.

Without a credit history, a lender has no real evidence they can use to make an informed lending decision. That’s why generally, the longer your credit history, the better it is for your score.

Pro-tip: Rather than close your unused credit card accounts, consider keeping them open – particularly if they’re older. If you decide to keep an old account open, it’ll increase the average age of your credit history and ensure you have a larger amount of available credit – both of which could improve your credit score.

Mix of Credit

Credit scoring models consider whether you have a mix of different types of credit (credit cards, retail accounts, installment loans, and mortgages) when calculating your credit score.

The more variety there your credit, the better for your score – as long as you’re making on-time payments and using it responsibly.

Important note: Avoid opening new accounts just to improve your credit mix – only open new accounts when you need them. As you’ll learn next, opening multiple new accounts in a short time could actually hurt your credit.

New Credit

Generally, when you apply for a loan or line of credit, lenders will check your credit reports and information during the application process. This is known as a hard inquiry or hard pull.

Hard inquiries may drop your credit score slightly, though the impact is usually minor. Why? Scoring models may assume borrowers who open many new accounts within a short timeframe are having money difficulties and consider them a greater credit risk as a result.

Read more: Soft and Hard Inquiries

So you know: If you’re seeking new credit, don’t let the potential negative impact of a hard inquiry stop you. Typically, your score could be lowered a few points temporarily – but as long as you use your new credit responsibly, it’ll be back up in no time.

Factors That Don’t Affect Your Credit Score

Checking your credit reports

Checking your credit reports will result in a soft inquiry but have no fear – soft inquiries have no impact on your credit scores.

In pre-COVID times, you could only check each of your credit reports (Experian, Equifax, Transunion) for free once a year. Beginning in April 2020 however, the three credit bureaus gave people weekly access to monitor their credit reports for free until April 2021. Missed the boat? Well then, we’ve got some great news – they’ve just extended it until April 2022!

Learn how to check your free credit reports (and the many benefits of doing so) here.

 Using your debit card

Checking and savings accounts aren’t included in your credit reports – only credit accounts like loans and lines of credit are. Using a debit card linked to your bank account won’t help you build credit, but it also won’t hurt it.

Being denied credit

Some online lenders (including Best Egg) will only run a hard inquiry on your credit report when you accept a loan or line of credit – not when you apply.

Keep in mind, not all lenders operate this way. If you see messages like “Check your rate with no impact to your credit score” on a lender’s website, you should be able to apply without affecting your credit.

Your level of income or changes to it

Believe it or not, how much you take home every month has no effect on your credit. So, whether you just lost a job or scored that big promotion you’ve been aiming for, you’ll see no changes to your credit score.

Note: If you’re unable to pay your bills on time due to job loss, that may affect your payment history, which will decrease your credit score. Still, your level of income itself will never affect your credit.

Payments under 30 days past due

By federal law, late payments under 30 days past due cannot be reported to the credit bureaus. As long as you pay your bill within a 30-day period, you’ll see no impact to your credit.

While this is helpful to know, be careful here. Your payment history is one of the most influential factors for your credit score, and late payments 30+ days past due can make it drop significantly.

 Getting married

When you get married, your credit score and history will not be combined with your partner’s – that information will always be tied to you alone, regardless of your relationship status.

Check out these resources to learn more about your credit scores: