What Affects Your Credit Score?

The information on your credit report is what affects your credit score, with the main factors being your payment history, amounts owed, credit experience, and new credit accounts. All credit scores are based on your credit report data. The exact calculations vary by credit scoring model and the credit bureau reporting the information, but since all roads ultimately lead back to your credit report, that’s where you should focus.

Below, we explore the most common reasons for credit-score changes and how much weight these factors have, using both the FICO and VantageScore scoring models. We’ll also show you what you can do to improve your score.

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1. Payment History: 35% - 41%

Payment history — more specifically, the percentage of required monthly payments that you’ve made on time — is the single largest component of most credit scores, accounting for more than one-third of your overall score. Having numerous late payments will pull your credit rating down. In fact, just one payment that is 30+ days late can drop your credit score by 100 points or more. The more accounts you pay late and the later your payments become, the more the damage will intensify.

The following grades reflect WalletHub’s interpretation of how your on-time payment percentage can be expected to impact your credit standing. The higher your grade is, the more likely you are to have a good credit score.

How WalletHub Grades Payment History

How to improve: Make prompt payments on your loans and lines of credit. You can set up autopay to ensure you are never late on a payment. If you are having trouble affording your minimum payment, contact your creditor to see what options they have that can help.

Learn more about why on-time payments are important and tips to never miss a due date.

2. Amounts Owed: 28% - 34%

The amount of money that you owe to lenders and creditors plays a major role in your credit score. If much of your money is already earmarked for debt obligations, the risks involved with lending you additional funds are obviously greater than they would be if you had plenty of disposable income. Plus, hefty balances are often accompanied by an inability to pay, so they naturally raise red flags.

In addition to the amount of debt you owe overall, your credit utilization ratio (the percentage of your credit limit that you’re using) plays a role in determining your credit score. The higher your credit utilization ratio is, the worse it is for your credit score. For instance, the average credit utilization ratio for someone with an 800+ credit score is 6.5%, according to Experian, while it is 82.1% for someone with a credit score of 579 or less.

In the table below, the grades are based on WalletHub’s analysis of credit data and reflect the sum of all your current revolving balances divided by the sum of your credit limits on all open accounts.

How WalletHub Grades Credit Utilization

The manner in which debt obligations influence your credit score ultimately ebbs and flows over time along with your spending and payment habits. As such, minor fluctuations in your credit score are normal. For instance, your credit score might drop a bit if one month your spending is inflated by a couple of one-time expenses, whereas it could rise if you reduce your debt obligations.

How to improve: Aim to keep your credit utilization ratio below 30% to avoid potentially seeing a significant decrease in your credit score. You can make extra payments on your credit cards and loans to reduce how much you owe and the total interest you pay. WalletHub’s debt payoff plans can help you find the fastest and cheapest way to get rid of your debt.

Learn more about how to improve your credit utilization.

3. Length/Depth of Credit History: 15% - 21%

Your credit score is ultimately a prisoner of time. It takes time to graduate from newcomer status and even longer to rebuild from mistakes. After all, negative information takes seven to 10 years to come off your credit report, depending on the type, and roughly 15% to 21% of your overall score is earmarked for the length of your credit history, depending on the scoring model used.

WalletHub estimates the impact of age on your credit standing by averaging the length of time each of your current tradelines has been open. It’s important to note that the longer your track record of responsible borrowing is, the more leeway you have for the occasional slip-up. A single missed payment amid years of promptness, for instance, definitely won’t affect your credit score as much as a missed payment with no positive context.

How WalletHub Grades Age

How to improve: Keep your credit accounts open since closing an old account can make it seem like your credit history is shorter than it actually is. If you don’t have any credit history, you can start building credit by getting a starter credit card or a credit-builder loan.

Learn more about how the length of your credit history affects your credit score.

4. Types of Credit Used: ~10%

An often-overlooked component of your credit score is the types of credit you have on your credit report, or your credit mix. Your credit mix makes up 10% of your FICO credit score, and it’s included in VantageScore’s depth-of-credit category, which makes up about 20% of your score.

A good score in this section demands a diversity of experience — such as a combination of credit cards and installment loans. You can’t truly elevate your credit standing until you have demonstrated proficiency with various types of borrowing vehicles, after all. But you don’t want to buy a house or a car, for example, until you’re in a position to do so responsibly.

WalletHub uses the diversity of your credit record as a proxy for experience, assigning grades based on how many different types of tradelines you have used.

How WalletHub Grades Your Credit Mix

How to improve: Your credit mix will naturally improve over time as your need for different types of credit arises. You should only apply for credit when you need it, and you should not get more credit cards or loans than you can manage at once.

5. New/Recent Credit: 5% - 11%

A hard inquiry on your credit report occurs when you apply for new credit, such as a loan or credit card. This effectively signals your intention to borrow money. And with an application process already in motion, all other lenders know that a portion of your spending power could soon be consumed by a new debt obligation. That, in a nutshell, is why applying for a credit card or a loan causes your credit score to dip temporarily.

Numerous hard inquiries in a relatively brief time period also reflect a worrisome desperation to borrow, a characterization that’s exacerbated when new accounts fail to follow. In fact, people with six or more hard inquiries on their credit report are up to eight times more likely to file for bankruptcy than people with no credit inquiries, according to FICO.

WalletHub’s hard credit-inquiry grades indicate how credit-scoring models and potential lenders are likely to view various short-term application rates.

How WalletHub Grades Hard Inquiries

How to improve: Do not apply for multiple credit cards at once. In addition, you should look for lenders and creditors that offer preapproval, which lets you see your chances of getting approved before you officially apply, without creating a hard inquiry. If you are not preapproved, you can skip applying and avoid getting a hard inquiry on your credit report.

It’s important to note that when it comes to auto loans, student loans, and mortgages, you’re given a bit of latitude to shop around. Inquiries made within a 14- to 45-day period are treated as a single inquiry, and FICO ignores credit inquiries from the previous 30 days when calculating your credit score. Each individual credit card inquiry, on the other hand, will remain on your credit report for up to two years.

With that being said, checking your own credit report will have no impact on your score. Such inquiries, as well as credit checks for employment purposes, are considered “soft.”

Learn more about credit inquiries.

Additional Factors That Can Affect Your Credit Score

In addition to evaluating performance metrics such as payment history, prospective lenders will be on the lookout for more serious issues, such as collection accounts and bankruptcies, which we’ll refer to here as derogatory marks. Such records convey significant financial difficulties and perhaps even a line of debt collectors headed by the government waiting at one’s proverbial doorstep.

In short, there’s really no good that can come from a derogatory mark on your credit report. You will have to wait for the day when the record is removed from your file, seven to 10 years in the future. Since derogatory marks can have an outsized impact on your credit, even in limited numbers, WalletHub’s grades penalize the presence of just one public record or collection account on your credit report.

How WalletHub Grades Derogatory Marks

This is by no means an exhaustive list of the countless factors that can influence your credit score, as only the proverbial keepers of the keys — credit-scoring companies — have all the answers. But this information should help you understand your credit score better and take steps to ensure that it keeps rising.

Finally, if you have yet to sign up for your free credit score, full credit report, and 24/7 credit monitoring from WalletHub, make sure to give it a try. There’s no better way to learn what affects your credit score than by monitoring how it changes with WalletHub’s daily updates.