A Guide to the 5 Factors That Determine Your Credit Score

Your credit score is a part of you: It can affect everything from your mortgage rate to whether you get hired for a job. “What’s your credit score?” is a question many of us hear, and one a lot of us can probably provide a ballpark answer for. But knowing what your credit score is just as important as knowing why it’s that number. For someone with very good to excellent credit (in the 740 – 799 and 800 and up range, respectively), knowing how you achieved that score can help you continue your good habits. Whereas someone with poor to fair credit (below 579 and in the 580 – 669 range, respectively) could use this information to stop bad habits and actively improve their score.

So, let’s break down exactly how your credit score is determined:

  • Payment History = 35%

It’s no surprise that the largest factor that affects your credit score is how well you manage your payments. Lenders consider your past payment habits to be a good indicator of your future payment potential. Habits like paying your bills when or before they’re due and paying more than the minimum each time weigh favorably, whereas missing payments or paying less than the minimum due are red flags. This includes payments on revolving loans—like credit cards—and installment loans—like mortgages and school loans. Just one 30-day-late payment can stay on your report for seven years and cause a significant drop in your overall score.

  • Amounts Owed = 30%

Coming in second place for largest credit score factors is just how much of your available credit limit you’ve actually used, or your “credit utilization.” The rule of thumb is that you shouldn’t use more than 30 percent of your credit limit on any revolving line. So, if you have a credit card with a $20,000 limit and you owe $6,000, you may look better to creditors than someone with a $1,000 credit card who owes $600.

  • Length of Credit History = 15%

How long you’ve had an account and when the most recent activity was also plays a role in your credit score. Someone who has had a credit card for ten years will be viewed more favorably than someone who has had one for 10 months. But if that same first person hasn’t made a purchase on that card for seven years, that may cause some lenders to reconsider offering them credit, as it can end up costing them more to maintain a $0 balance account. Some creditors may even eventually close your unused account if it’s inactive for too long.

  • New Credit = 10%

Some people may think opening a few credit cards right before applying for a loan or mortgage will show lenders that they have previous credit experience, but that can actually harm your credit score. It may indicate to lenders that you are in financial trouble and need access to credit immediately. This also lowers the average credit age for those who already have a credit history. If you have a 12-year-old credit card and an eight-year-old credit card, your average credit age would be 10 years. Once you open a new card, your average credit age drops to six years and an inquiry is placed on your credit card. This inquiry remains whether or not you decide to accept the card and can cost you a few points on your overall score.

  • Types of Credit = 10%

This aspect of your credit score is a little less black and white, but the general intention is to determine whether you can successfully handle a variety of credit types rather than just one. You may have a student loan that you pay consistently on time, but without a revolving form of credit, like a credit card, lenders may view you as a higher risk. This 10 percent may not look like much, but it could be the difference between a fair credit score of 657 and a good one of 677.

Want to know more about credit scores and reports, including what the three major credit bureaus are, how financial certain financial behavior can raise or lower your score, and how you can get a personalized credit score action plan? Visit Suffolk Federal’s Financial Empowerment: Online Workshop, begin the Credit Scores & Reports module, and master your credit today.

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