The 5 Most Important Factors That Affect Your Credit Score (Good and Bad)

The 5 Most Important Factors That Affect Your Credit Score (Good and Bad)
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Point Editorial

Your credit score consists of a three-digit number determined through multiple financial factors. It is symbolic of your behavior in handling money and is one indication of financial health.

FICO and VantageScore are the two most common credit scoring models. Generated scores fall between 300 and 850, although the range of some models may differ. Experian’s model, for instance, starts at 200. 

There are five classifications of credit scores: poor, fair, good, very good, and excellent. While there’s no such thing as the perfect credit score, having a good credit score means easier approval from financial institutions for ventures like buying a house or a car. It also means you’ll have more negotiating power when it comes to the terms of those loans.

According to FICO, a "good" score is between 670 to 739. 

Read on to learn more about the factors that make up your credit score, and the types of accounts that can both help and hurt your score, as well as ways to boost your score. 

What affects your credit score?

Five major factors determine your credit score. 

One: Payment history. This is the most important factor in determining your credit score, accounting for 35 percent. It’s arguably the easiest factor you can pay attention to in order to improve or maintain your score. 

Two: Amounts owed. Also known as credit utilization, this is the second-most significant factor in the calculation of your score. It accounts for 30 percent. This refers to how much credit you are using, specifically regarding credit cards or any lines of credit. Exceeding your pre-approved maximum limit can cost you. Experts recommend keeping your utilization under 30 percent. 

Three: Credit history length. It takes time to build credit, but the longer your history, the more accurately banks and other lenders can establish your financial behavior as a borrower. Your credit history contains information about your oldest and newest credit accounts, both active and closed. This accounts for 15 percent of your overall score. 

Four: Credit mix. This means owning an array of credit types, such as car loans, credit cards, or a mortgage, and makes up 10 percent of your credit score. 

Five: New credit. The final 10 percent of your score is new credit accounts. Whenever you submit an application and lenders make a hard inquiry (which is when a lender checks your credit), a note is made in your file.

Opening too many credit accounts, especially within a brief period, can damage your score. Do your research and only apply for the credit accounts that will serve you best.

An intelligent credit option is Point Card

Designed as a transparent, easy-to-use payment card, Point Card allows cardmembers to exercise financial independence and spend their own money. You'll receive exclusive benefits, including unlimited cash-back and bonus cash-back on subscriptions, food delivery, rideshare services, and coffee shop purchases. 

More importantly, you work hard for your money, and Point works hard for you in return. In addition to safety features extended to all users, such as fraud protection with zero liability, car rental and phone insurance, and no interest rates, there are no credit checks required. Not only will you have the tools to build your wealth, but you won’t have to worry about how this will influence your credit score. Simply put, Point is an excellent tool for intelligently navigating your financial journey. 

Remember that credit scores aren’t stagnant; they are dynamic and change according to your decisions. 

Types of accounts that impact credit scores

The two main types of debt impacting your credit score are installment credit and revolving credit. 

Installment credit 

This usually refers to loans where you borrow a fixed amount of money, make monthly payments until you pay back the loan in full (also called installment loans). Mortgages, student loans, and personal loans are three well-known examples.  

Revolving credit 

The most common type of revolving credit is a credit card. As the name suggests, revolving credit means you can continuously take out and spend a certain amount, making minimum payments each billing cycle. Once you pay off your balance, you can take out money once again, and so on. 

What can hurt my credit score?

One: Missing payments. Payment history is the most important part of your score. Missing or making late payments can severely harm your score, especially if this behavior persists for an extended period. Your interest rates will also compound, becoming extremely difficult to pay off if you routinely miss payments. 

Two: Using too much available credit. You never want to appear to be too dependent on credit; banks and lenders disapprove of this. Try to keep your credit utilization under 30 percent (10 percent is even better). 

Three: Defaulting accounts. “Defaulting” means that you've broken the conditions of your credit agreement. This can result from foreclosure, repossession, or bankruptcy. These events stay on your credit history for seven to 10 years. 

Four: Applying for a lot of credit in a short period of time. Every time you send in a credit application, a note appears in your file. Inquiries remain in your record for two years. Applying for multiple lines of credit may suggest that you are in financial trouble. Banks will not be eager to enter into business with you if this is the case. 

How to improve your credit score

Tip 1: Check your credit score. Known as a soft inquiry, checking your own score doesn’t affect your standing. You’re entitled to an annual free credit report from one of the three major credit bureaus, Experian, Equifax, and TransUnion. Take advantage of this. If you don’t know your score, you can’t take steps to fix it. 

Disputing any inaccurate information on your report is also essential. Since it takes time to investigate and settle disputes, you want to do this as soon as possible. 

Tip 2: Pay bills on time. Again, since this makes up 30 percent of your score, you want to prioritize paying your bills on time. You can usually set up automatic payments to ensure that you don’t miss due dates.

Tip 3: Pay down your debt. Paying off any outstanding debts is one of the quickest ways to boost your score. 

Tip 4: Make any outstanding payments. Extending on tip number two, the longer you go without making payments, the more interest you’ll generate. The larger the penalty and the later the payment — whether 30, 60, or 90 days overdue — the faster your credit score can drop.

Tip 5: Limit new credit requests. Doing this will also reduce the number of hard inquiries made into your credit file. Only apply for credit when necessary. 

Things that don't affect your score

There are several things that many believe influence your credit score but are misconceptions. This includes:

One: Checking your own credit score. 

Two: Income and bank balances. While often recorded by credit companies, your employment information doesn’t play a part in determining your credit score. This does verify that you are the correct account holder, but any promotions or raises you receive at work won’t boost your score, and neither will growing your savings. 

Three: Rent and utility payments. While it may be a surprise, the three credit bureaus don’t collect information regarding your rent and associated utility payments. The only exception is if you make a late utility payment.

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Point Editorial
A group of writers, thinkers, & designers from varying backgrounds — all part of the Point Card team. Sharing perspectives on concepts in design, finance, and culture through an everyday lens.
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