What Affects Your Credit Score: 7 Factors That Make a Big Impact

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11.1% of Americans have poor FICO scores (under 550). For many, this is because they can’t get on top of their debt and finances and for others, it’s because they don’t truly understand what affects their credit score.

Knowing what affects your credit score and by how much can help you get on top of things and start to improve it.

So, exactly what affects your credit score? These are seven factors that make a big impact on your score.

1. Payment History

Payment history is the biggest influence on your credit score and if you can get anything right, it should be this. Payment history basically means what you’ve paid on time and late payments. The latter can cause a huge drop to your score.

If you ever know you can’t make a payment on time, try to work with the company to get an extension. This will prevent it from being reflected on your credit score.

You should also dispute any late payments reported that you don’t believe are accurate.

2. Credit Utilization

Credit utilization is another huge impact on credit score. Simply put, this means the amount of credit you’re using. For example, if you have a total of $10,000 in credit cards and are using $5,000, your credit utilization is 50%.

For years, the rumor that using 30% or less of your available credit is ideal for your credit score has circulated. This is partially true in that the less you use, the better — using a lot of your credit makes you seem risky, especially if it’s for an extended period of time.

You can help this by having more available credit but you should make sure you use it responsibly. If you take out more and then use most of it, it will have the opposite effect.

3. Credit History Length

The length of your credit history can also help to determine if you have good credit or bad credit. It can be difficult for immigrants and people newly of adult age to build their credit because it will take a while for them to improve — not because they have a history of bad credit, but because they have no history at all.

The more the months and years go on, the longer your credit history length is and the better off your score will be for it. 

4. Credit Mix

Lenders generally like to see a good credit mix when it comes to your credit score, so having different types of debt will improve that score. This is because it reassures people that you can pay back a variety of debts and are good at managing your money.

Different types of credit may include house loans, car loans, credit cards, etc. 

If you can, try to get a few different types of credit reported. It’s not as important as credit utilization or payment history, but it certainly does help in establishing you as a reliable borrower.

5. How Many Accounts Are Open

Another thing that will impact your credit score is how many accounts you have open. Although it may sound like more accounts is bad because high credit utilization has a negative impact, this isn’t the case — lenders like to see a few lines open with responsible payments on all of them.

If you’re looking to improve a credit score, a good way to do it as by opening more credit cards as long as you have the means and won’t be tempted to use them irresponsibility. 

6. Hard Inquiries

Hard inquiries can have a big negative impact on your credit score, which is why you shouldn’t apply for a bunch of credit cards you may not get approved for. Instead, try to use pre-approval methods and research the credit cards and loans that you definitely will be approved for.

A hard inquiry means a lender has looked into your credit score. Soft inquiries are used for the preliminary stages of some kind of loans, however, and do not impact your credit score.

If you’re applying for something, make sure you know which kind of inquiry you’ll be subject to. It’s natural to have a few hard inquiries on your credit report but if they’re excessive, this could be detrimental. 

7. Using Your Credit

When you have credit, you need to keep using it. If you keep your cards at zero balance, this may sound good in theory, but it’s not in practice! If you don’t use them at all, there’s nothing to report to the credit bureaus and it may result in your score decreasing.

This is one where it’s important to know the rules, as people often don’t understand this and think that their score will improve faster by applying for a credit card and never using it. Instead, putting small and frequent purchases on there and immediately paying them off is a much better idea and will see your score improve faster.

What Affects Your Credit Score? All of This

All of these factors have an influence. When it comes to what affects your credit score, payment history is definitely the top followed by credit utilization but to maximum your borrowing potential, you need to consider all of these things and use them to your advantage where you can.

Keep your credit card balance low (but still use it), take out a variety of loans if you can do so responsibly, and make sure you pay things on time or negotiate with companies directly.

Do you want to learn how to repair your credit score on your own? Check out our program to fix it in a few short months. 


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