Five Factors That Determine Your Credit Score

A good credit score can make it easier to get loans and other types of credit. It also impacts how much you pay in interest and fees.


Credit scores are based on information in your credit reports, which contain data on your payment history, debts and public records, such as bankruptcy filings, suits, liens and judgments.

Payment History

Paying bills on time is the single biggest factor that determines your credit score, accounting for 35 percent of it. The way you manage your debts – and how quickly you pay them back – gives lenders insight into whether or not you’re likely to be a good borrower, and what kind of interest rate they should offer you. Late payments that are reported to the credit bureaus are negative in your scores, but how much they impact you depends on how serious the missed payment was, how recent it was and how often you’ve had late payments in the past. If you’re having trouble making payments, contact your lender to make alternative arrangements, and remember that a history of on-time payments can make your credit scores rise again.

Many lenders, vendors and service providers report your monthly payment activity to the credit bureaus — Equifax, Experian and TransUnion — which is what creates your credit reports. These reports provide the data that FICO and VantageScore use to develop your credit scores. Negative information that shows up on your reports can stay for up to 10 years, depending on the type of item and how recent it was. Other factors that influence your credit scores include the length of your credit history, how much you’re using of your available credit (known as your credit utilization), the types of accounts you have and how recently you opened them, and the number of new inquiries on your reports, which may lower your score if there are too many within a short period of time.

Credit Utilization

Credit utilization is one of the components that makes up 30% of your credit score and helps lenders judge how likely you are to repay debt. It’s calculated by tally-ing up the outstanding balances on your revolving accounts, such as credit cards, and then comparing them to the total amount of available credit on those accounts. The lower the ratio, the better.

A high ratio may signal to lenders that you’re spending more than you can afford, which might suggest you could have trouble paying back additional debt. To maintain a good credit score, you should aim to keep your credit utilization below 30% of your overall available credit.

It’s possible to reduce your credit card utilization by asking your lender for a credit limit increase. This is particularly a good strategy if you’re using credit cards to make recurring purchases and then paying them off when your billing cycle ends to avoid accruing interest.

You might also try to use an installment loan, like a personal loan or auto loan, to pay off your credit card balances. This approach is commonly referred to as debt consolidation and can help you save money by reducing your total amount of outstanding debt, which lowers your credit utilization ratio and improves your credit scores in the process. The key is to ensure the installment loan has a low interest rate and can be paid off within a reasonable time frame so you can avoid paying extra in finance charges.

New Credit

Inquiries are listed on your credit report and count for 10% of a credit score. This category looks at new accounts, credit lines or loans that you have applied for. Credit scoring models take into account how many inquiries you have, the types of accounts and whether you were approved or denied for the credit line.

The credit scoring model considers that borrowers who apply for several credit lines in a short period of time are more likely to be a high risk borrower. This is why it’s important to spread out your applications over a long period of time before applying for any type of loan or credit card. The good news is that, if you make on-time payments on your new credit lines, the impact to your credit score will be minimal.

Adding new credit lines also increases your available credit, which in turn can positively affect your credit utilization rate and the Length of Credit History component of your score. However, opening a new account may cause your credit utilization to increase slightly, depending on the size of the new line and your previous debt level. Generally speaking, revolving credit will benefit your score while installment loans, like auto or student loans, may hurt it. This is a result of installment debts causing more total amounts owed than revolving debt.

Length of Credit History

A long credit history is one of the five factors that make up a credit score. Though it may seem minor compared to other factors, such as payment history and credit utilization, this category can help lenders see that you have a solid track record of responsible debt management and are likely to pay back what you borrow.

This credit scoring category takes into account how long your individual accounts have been open and, if applicable, the age of your credit history as a whole. Generally, the longer your credit history is, the higher your score will be. A good rule of thumb is to keep your credit cards and other accounts open for as long as possible, especially revolving accounts like credit card balances.

It’s important to note that “credit history” is different from credit age, which can be misleading because these terms are often used interchangeably. However, while credit score models may consider both of these attributes in calculating your credit score, they are typically calculated using different criteria and weightings. For instance, credit scoring models might take into account the average age of your accounts or might only count the age of your oldest account.

This information is gathered by credit reporting agencies, which include the three major credit bureaus: Equifax, Experian, and TransUnion. This information is then compiled into your credit report, which contains the bulk of what determines your credit scores. Items on your credit reports stay there for up to seven years, so it’s important to keep these records clean.