5 Factors That Impact Your Credit Score

by: holli casto
vp of training and development
Published 2/22/2024

What factors influence your credit score? 

Your credit score, sometimes called your "financial reputation," is made up of five elements of your financial profile and history. These elements are weighed differently by the different credit agencies, so while you may be excelling in one area, where you're doing poorly in another area could bring your credit score down. These criteria are listed in order of what are considered most important to least important.  

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Payment History 

Your payment history is, just as it sounds, your record of making payments toward your debts. There should be some clarification made about what debt repayments are included in your payment history. On time payments made toward loans and credit cards make positive contributions toward your payment history. Late payments are judged by the severity of the late payment, depending on when your lender reports late payments. Your payment history also includes public records like bankruptcy, foreclosures, judgements, liens, and garnishment collections. Negative judgements will eventually fall off of your credit report within seven to ten years.  

As you may have noticed, things like on time payments toward utility bills, medical bills, buy now pay later services, and so on, do not affect your credit. That said, if these bills are extremely overdue or go to collections, they will be reported to collections. The same goes for medical bills. While this isn't true for all healthcare providers, most medical bills do not affect your credit score.  

Credit Utilization 

Credit utilization, also called capacity, is how much of the credit that is available to you that you are using. Try to keep your credit utilization under 30%. When your credit utlization is this low, it will reflect positively on your credit report. For example, if you have a $10,000 line of credit, try to only use $3,000 at a time. This shows lenders that if they extend credit to you, you won't immediately max out your lines of credit.  

Credit utilization also deals more with revolving lines of credit than it does installment loans. Your auto or personal loans or mortgages aren't necessarily impacting your credit utilization. But, if you have a credit card or a line of credit, that will count toward your credit utilization.  

Length of Credit History 

Showing that you have a long history of managing your loan payments is also a good indicator to lenders that you can handle a new loan. This is why you should avoid closing out old credit card accounts when possible. If they're not charging you an annual fee, keeping an old credit card account open is well worth it, even if you rarely use it. As a note, if you're keeping an old account open, be sure to use it occasionally to avoid it getting closed due to inactivity.  

This is where it gets complicated with paid-off loans; when you pay off installment loans, it may briefly harm your credit score. This is because open and active accounts are scored more highly. They show you are actively making payments toward them. That said, don't let a brief hit to your credit score deter you from paying off your debt. Just keep in mind that you should have another type of open credit account on your report to show you are actively managing your credit, like a credit card.   

This also goes to show, you should research your cards when you open them. Make sure they don't have annual fees. If they do have annual fees, make sure they're something you can commit to for the long term.  

Credit Inquiries 

Inquiries tend to be less consequential for your credit but they are important to keep in mind. Credit inquiries are when lenders check your credit report when you're applying for a loan or a credit card. The reason why inquiries impact your credit score is because they reveal any borrowers who may be trying to take advantage of the system or applying for too much credit at once.  

With inquiries, it is important to know the difference between a hard inquiry and a soft inquiry. A hard inquiry is when a lender checks your credit report because you've applied for a loan or credit card. A soft inquiry is when you check your own credit report or score using a tool like My Credit Journey. Inquiries have the shortest lasting impact on your credit score, falling off after two years.  

Credit Mix 

Lenders also need to see that you have a good mix of credit. If you only have credit cards, or only have installment loans, this doesn't always show great management of these different account types. That said, credit mix tends to have the smallest impact on your credit score. If you're on your journey to being debt-free, don't let the idea that you won't have a good enough mix of credit get in the way of paying off your debt. Your history of paying off your debt will outweigh your lack of a mixture of accounts.  

Your credit score is extremely important to your financial well-being. Understanding how it works and how your actions affect your credit score only further empowers you to make greater strides toward a stronger financial future. 

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This is for educational purposes only and not financial advice.