Credit Chronicles: What Affects Your Credit Score?

Credit scores can be mysterious... What makes that important number go up? What makes it go down? A good credit score is an important component in your financial fitness. As we learned in our Introduction to Credit, credit can hold us back from growing financially. You may be wondering, “How can I impact my credit score the most?” This edition of the Credit Chronicles can help you answer those questions. 

What Is a Credit Score?

Your credit score is a number between 300-850 that depicts your “creditworthiness"—your ability to pay back the credit that you owe. A “good” credit score is typically considered a score of 700 and above.

What Affects Your Credit Score?

Credit bureaus look at a variety of different things when determining your credit score. Let’s explore the five factors that impact your credit score the most, and just how much sway they have over that magic little number.


#1 Payment History
Impact on credit score: 35%


Lenders want to know that you can manage your credit responsibly. One way to help show this is through a history of making payments on time. These types of payments include utility bills, credit card bills, car loans, and mortgages. Typically this doesn’t include streaming subscriptions, but credit bureau Experian recently allowed consumers to add Netflix payments. (However, this does not apply to the other 2 credit bureaus.) Note that a payment later than 30 days is often reported to the credit bureaus.

Ideally, you'd make 100% of your payments on time, but there's still a little wiggle room. Below average is considered fewer than 90% of payments made on time, while average is listed at 90-97%. But because this behavior factors so heavily into your credit score, it's important to prioritize on-time payments as the foundation of your financial wellness.

100% of payments made on time = Excellent!

Wellness tip
Make a list of all your recurring payments and estimated bill dates so you have a sense of when they're due. Take the extra step to make your payments automatically by adding your debit/credit card to your account's bill pay portal or within your credit card.


#2 Credit Utilization
Impact on credit score: 30%


Credit Utilization is the ratio of amount of credit you’re spending relative to the credit made available to you. (Your credit spent divided by your available credit). Lenders look at this number to determine whether or not you are financially overextended. When you use too much of your available credit—even if you haven’t used all of it—you may not have enough left when you really need it. This can be troubling to lenders.

Wellness tip
Be active with your credit, but not too active! While keeping your credit utilization below 30% is a good goal, it's better to use some of your available credit and pay it off than use none of it at all. And paying your credit bill in full vs. the minimum balance can improve your credit utilization and score, too.


 #3 Oldest Credit Line
Impact on credit score: 15%

Lenders want to know that they are doing business with someone who has consistent experience handling credit. They will look at the age of your oldest credit account to help assess the length of your credit history. In other words, how many years have you been using credit?

3-7 years is considered an "average" length of credit history

Wellness tip
Build a positive credit history by keeping your oldest credit account open and healthy by applying these wellness tips! If you pay off a credit card, consider keeping it open instead of shutting it down. That way, you have an account that's well-maintained (fully paid off) but you still have the credit history you've accrued.


#4 Credit Mix
Impact on credit score: 10%

One way to show lenders that you’re reliable and can manage credit well is to establish a history of responsible credit behavior with different types of credit. You want to indicate that you can manage a wide range of credit products well. “Credit products” could include a car loan, credit card, student loan, mortgage, and more.

Wellness tip
If you have different types of credit accounts open, stay on top of them, and don’t borrow more than you can afford. Like your top bills and recurring payments, make sure you create a list of these as well.


#5 New Credit
Impact on credit score: 10%

Another method lenders use to determine if you’re financially overextended or not is to look at the number of credit accounts you have opened in a short window of time. If a lender sees you’ve opened multiple credit accounts quickly, that indicates to them that you’re not in great financial shape to pay back what you’re borrowing.

3-4 account opened is considered "good" in the world of credit; 0-2 is even better

Wellness tip
Make sure you manage your current accounts by paying your bill on time each month and using your available credit only when you need it. Try not to open multiple accounts at once, and once you have an established credit account, only apply for an additional credit account when you need it.

Now that you have a better idea of what factors affect your credit score the most, you can take the next steps by using some of our Financial Wellness tips to build and improve your credit. Make sure to stay tuned for more sections of the Credit Chronicles series that will help you continue to use credit responsibly.

This blog post is intended for general information purposes only and should not be considered legal or financial advice.

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