What affects your credit score?

Ever wondered what affects your credit score? Credit scores are calculated using a formula (called a scoring model) that weighs various factors differently. For example, payment history typically makes up the largest share, while things like new credit have a smaller impact.

Understanding how these pieces fit together can help you focus on changes that actually make a positive difference to your credit score. Here’s what you should know.

What affects your credit score the most?

The factor that affects your credit score the most, by far, is your payment history. This is followed by how much of your available credit you’re using (credit utilization), credit history length, credit mix, and how many new inquiries you’ve had on your report.

Here’s a quick breakdown of the main factors and how much they typically matter:

Here’s a closer look at how each of these works:

Payment history (35%)

Your payment history makes up 35% of your credit score, which is the biggest factor out of anything else. So, why does your payment history matter so much? In short, lenders want to see a consistent track record of on-time payments across your accounts, such as credit cards, student loans, auto loans, or a mortgage. Essentially, your payment history helps them see whether you pay your bills on time.

If you have even one late payment, it can set off alarm bells to lenders. It can also drop your credit score if your payment is at least 30 days late.

The good news is that your payment history is one of the most straightforward factors to control. For example, you can set up autopay so you never miss a payment. Or, you can set up calendar reminders if you don’t want your payments automated.

Credit utilization (30%)

Credit utilization is the second-biggest factor that affects your credit score. It measures how much of your available credit you’re using at any given time compared to your total credit limits. For example, if you have a $10,000 credit card limit with a $5,000 balance, your credit utilization is 50%.

In general, the lower your credit utilization ratio is, the better. Using a large portion of your available credit can signal to lenders that you might be financially overextended, even if you’re making payments on time.

That’s why this factor carries so much weight. It gives lenders a snapshot of how you’re managing your credit right now.

What is a good credit utilization ratio?

A common rule of thumb is to keep your credit card utilization below 30%. So, if your total credit limit is $10,000, you’d want to keep your balances under $3,000. Or if your total credit limit is $50,000, you’d want to keep it below $15,000.

That said, people with the highest credit scores often use even less (typically under 10%). Paying down balances or making multiple payments throughout the month can help keep your utilization low.

Length of credit history (15%)

The third factor that affects 15% of your score is the length of your credit history. This component looks at how long you’ve been using credit and includes things like:

• The age of your oldest account
• The age of your newest account
• The average age of all your accounts

In general, a longer credit history can help your score. It shows lenders you have more experience managing credit over time. That’s why it can be helpful to keep older accounts open, even if you don’t use them often. Conversely, closing them could shorten your average account age and potentially lower your score.

Credit mix (10%)

Your credit mix refers to the different types of credit you have, and it’s used to calculate 10% of your credit score. This includes:

• Revolving credit, like credit cards and lines of credit
• Installment loans, like auto loans, student loans, or mortgages

Having a mix of both can help your score, since it shows you can manage different types of borrowing. That said, this is a smaller factor. You don’t need to open new accounts just to improve your mix if it doesn’t make sense for your situation.

New credit inquiries (10%)

Every time you apply for new credit, a hard inquiry will likely be involved, which will show up on your credit report. One or two inquiries usually won’t have a big impact. But applying for several accounts in a short period of time can cause your score to dip — though this is usually a temporary effect.

This is because new credit inquiries make up 10% of your credit score and can signal to lenders that you’re taking on new debt too quickly.

What hurts your credit score?

If improving your credit score is a goal of yours, it can be helpful to know what factors could be unintentionally working against you. Here are some of the most common problems that can lower your credit score:

• Missing or late payments: The easiest thing you can do to prevent your credit score from dipping is to make your payments on time, always. If you ever think you’ll miss a payment, call your lender immediately to discuss your options.
• Using too much of your available credit: Just because your credit limit is a certain amount doesn’t mean you should carry a balance close to that limit. In fact, paying off or consolidating high-interest debt and keeping those balances low can help you avoid hurting your score.
• Applying for a lot of credit in a short period: A few applications here and there are usually fine, especially when you’re comparing rates. But if you’re regularly opening or applying for multiple types of credit at once, it can signal to lenders that you’re taking on new debt quickly, which could temporarily lower your score.
• Closing older credit cards: Closing an old credit card can have two negative effects on your score. First, it can shorten your credit history, which can lower your score. And secondly, it can reduce your total available credit and increase your utilization as a result.
• Accounts in collections or defaults: More serious issues like collections or charge-offs tend to have a longer-lasting impact on your credit score. This is because they signal to lenders that a debt wasn’t repaid as agreed. Negative credit events like these can severely damage your overall score.

How long do negative items stay on my credit report?

If you have a negative item on your credit report, it won’t stay there forever. But exactly how long it will remain depends on the type of credit event. For example:

• Late payments, collections, and charge-offs typically stay on your credit report for up to 7 years.
• Bankruptcies can stay on your report for up to 10 years.
• Hard inquiries usually stay for up to two years. However, only inquiries from the past 12 months will impact your credit score.

What helps your credit score?

There’s no shortcut to building good credit. In fact, most of the things that help your credit score come down to consistency.

Here are the main points to focus on:

• Pay your bills on time, every time.
• Keep your credit utilization low (ideally less than 30%).
• Let your accounts age over time (and don’t close accounts unless necessary).
• Use a mix of credit responsibly (when it makes sense).
• Be intentional about when you apply for and open new credit accounts.

Keep reading: How to check your credit score