by Austin

January 31, 2020

credit score factors

It seems as though every one in today’s world is talking about how you need to have a good credit score in order to get ahead financially. But most people don’t even know what it really takes to build a good credit score because they don’t actually know what factors affect their credit score.

Lucky for you, we are going to break down exactly what goes into your credit score, what can damage your credit score, and how you can build good credit over the long haul. After reading this, you will have a complete understanding of credit scores and will be able to start building, or repairing, yours today.

The 5 Most Important Factors That Affect Your Credit Score

Credit scores are actually pretty simple. You might have thought that there were a bunch of things that went into calculating that three digit score, but there are really only five factors that affect your score. Check you credit score for free with Credit Karma.

1. Payment History

The biggest and most important thing that goes into calculating your credit score is your payment history. In fact, it accounts for up to 35% of your FICO score. If you continually miss payments or are late on making your payments, your credit score is going to take a major hit.

Make sure you are staying on top of your payments. This is the easiest and most responsible way to build good credit over the long haul.

2. Credit Utilization

The next most important factor is your credit utilization ratio. This factor accounts for up to 30% of your FICO score. It is considered good to have a credit utilization ratio of below 30%, but if you can, you should really shoot for having a credit utilization ratio of under 10%.

If you aren’t familiar with what a credit utilization ratio is, here is a quick example. If you have a credit card with a $1,000 limit and are using $700 of that availability, you have a credit utilization rate of 70%. Ideally, you’d want to keep your credit utilization rate below 30%.

3. Length of Credit History

Another factor that affects your credit score is the length of your credit history. This factor accounts for 15% of your FICO score. This one you will have less control over than the first two.

Think of it like a friendship. The longer you know someone and interact with them, the more you are likely to trust them. The same goes for your credit. The more experience you have with using credit, the more banks and other creditors will trust you.

4. Types of Credit

The next factor that affects your credit score is the types of credit you have. This makes up 10% of your credit score. The people with the top credit scores have a broad range of credit types. This could include credit cards, personal loans, mortgages, or car loans.

Having multiple different types of credit shows creditors that you have experience with a broad range of products and if you make your payments on time, they see that you are responsible in managing your debts.

5. New Credit Accounts

The last 10% of your FICO score is calculated from the number of new accounts you have/have applied for. If you apply for or open too many new credit accounts too quickly, creditors will view this as risky. It could be a sign that you’re in financial distress and are looking for ways to bring in money.

What Can Damage Your Credit Score?

Now that you know what factors go into calculating your credit score, we can pretty break down what exactly damages your credit score. Check your credit score for free with Credit Karma.

1. Late Payments

The easiest way to destroy your credit score is to stop making payments or making your payments late. Imagine if you gave someone a significant money and they promised to pay you back on a certain date. A month or two has now passed from that date and you still haven’t heard from them.

Would you still trust them? Probably not. It works the same way with lenders. Make sure you are paying your bills on time.

2. High Credit Utilization Rate

Another easy way to hurt your credit score is to have a high credit utilization rate. If you just opened a new card and your limit is only $1000 and you are using your card for a lot of purchases and nearly hitting your limit, you may want to consider applying for a limit increase.

If you can responsibly manage higher credit limits, you may want to consider applying for an increase sooner rather than later. It could have a positive impact on your credit score if you manage it well because it will lower your credit utilization rate.

3. Defaulting on Your Accounts

Avoid defaulting on your accounts at all costs (obviously). Defaulting on your credit accounts will completely wipe out any trust you have built up with the credit bureaus. Make sure you are only purchasing things that you have the cash to pay for.

You should never purchase something on credit if you don’t have the money sitting in a bank account ready to pay for it. It is important to factor credit card payments into your budget. If you do this, you should never have a problem paying your bills (unless some other terrible emergency pops up out of nowhere).

4. Applying For Too Many New Accounts

When you apply for too many credit cards in a short period of time it can have a negative impact on your credit score. Applying for too much credit too quickly makes you appear as if you’re strapped for cash.

This is a major red flag to creditors and lenders and your credit score will take a hit because of it. Make sure you space out your credit applications to avoid having too many hard inquiries too quickly.

Related: Should Young People Use Credit Cards?

5. Cancelling a Credit Card

This one may be a little more confusing than the rest. It kind of ties into the length of credit history factor. If you have had a credit card for say five years and you have had another one for three years and you decide to cancel the older one, you effectively just reduced your credit history to three years.

Keeping old credit cards that you don’t necessarily want anymore and occasionally using them might actually be better than cancelling them for your credit score. However, if you have excellent credit and plenty of other credit history, you could probably cancel an old card and your credit score will rebound pretty quickly.

Responsible Credit Habits to Build Good Credit Over Time

So far we have covered what goes into your credit score and what damages your credit score. Now it is time to give you some tips to make sure you are developing responsible credit habits to build good credit over the long haul.

1. Make On-Time Payments

The single most important thing you can do for your credit score is to make all of your payments on time from the start. You can’t just make some of your payments on time. It needs to be all of them.

If you have had issues remembering to pay your bills or have missed payments completely, you may want to set up autopay for your bills. At the very least, you need to set reminders leading up to your payment date. You absolutely cannot miss payments. It does account for 35% of your credit score after all.

2. Keep Your Utilization Low

The next most important thing you can do is to keep your credit utilization rate low. You can achieve this a few different ways:

  1. Make sure you pay down your balance at the end of every month. Or, if you are using a lot of credit throughout the month, maybe make a couple payments throughout the month.
  2. Request an increase to your credit limit. Increasing your credit limit will lower your credit utilization rate. It is a more hands off approach than making multiple payments each month but it can be riskier if you aren’t responsible enough to handle more credit.
  3. Use your credit card for only essentials. If you aren’t using your credit card for every purchase, it will be easier to maintain your credit utilization ratio.

Regardless of how you decide to manage your credit utilization ratio, try to keep it below 30% at the very most. If you can get it below 10% that will give you the best results.

3. Don’t Apply For Too Many Credit Cards

Credit is a great financial tool, but that doesn’t mean you need to try to get as much of it as you can as quickly as you can. Applying for too much credit too quickly will lower your credit score.

You should try to keep your new credit applications/accounts to less than two every two years. If you go over two accounts/hard inquiries every two years, your credit score will take a hit. Check your credit score for free with Credit Karma.

4. Be Patient

The last and most important thing is to be patient. Building credit is a long term game. You aren’t going to build an excellent credit score overnight. It takes time to build your credit because it takes time to build your trust with creditors and lenders.

Related: How to Build Credit from Scratch


Understanding what factors affect your credit score is the first step to repairing your credit or building excellent credit. Many people have no idea what goes into their credit score and they develop poor habits that will make their scores drop.

Hopefully you will now be able to understand and implement a plan to build your credit history the right way. It is important to make sure you are patient and follow the tips we gave you to manage your credit responsibly.

Author Bio:

logic of money logoAustin is the founder of The Logic of Money and has a passion for finance and helping others. He studied finance, investments, and banking as well as real estate and urban land economics in college. He hopes that he can share his knowledge and tips with others to help make personal finance less stressful for everyone.

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