What Affects Your Credit Score?

It’s important to understand your credit score, how to check it, and how to maintain a good credit score and credit history.
 
Credit scores typically range from 300 to 850. The higher your credit score, the more attractive you are to lenders and creditors. (The FICO Score is the most commonly used credit score.) A solid score can help you get a credit card, a personal loan, or a mortgage loan.
 
You may have some idea of the habits that will get you a better score. But do you know what the top two factors are? Keep reading to find out. You’ll also learn what the other factors are and get tips on how to raise your number.
 
Learn more about what a credit score is and how to check your credit score for free.

Payment history is the most important factor

Your payment history accounts for 35% to 40% of your credit score, depending on the credit reporting agency. Lenders, after all, want to know that you’re able to repay your loans on time.
 
When you consistently pay your bills on time, your credit score goes up. When you don’t, it goes down. If you’re more than 30 days late making a payment, it will stay on your credit report for seven years.

To maximize your score, pay your bills

Pay all your bills on time, and pay at least the minimum balance. (Paying more than the minimum can help bump up your score.)
 
Afraid you’ll forget? Try one of these solutions:

• Mark your calendar with a reminder.
• Sign up for text alerts from your lender or creditor.
• Use online banking or Bill Pay to set up recurring payments. Most banks and credit unions let you schedule an auto-payment each month. You can choose to make the minimum payment, pay a set dollar amount, or pay the full statement balance each month.
• Change your due date if it’s not convenient. You can ask your lender or creditor to, for example, change your due date to match when you receive your paycheck.

The amount of credit you use is also important

The amount of available credit that you actually use is the second most important factor in your score. It accounts for 20% to 30% of your credit score.
 
It’s best to keep your “credit utilization” – the percentage of your credit limit that you use at any given time – fairly low.

To maximize your score, limit your utilization

Try to use no more than 30% of your available credit at any one time.
 
Let’s say your total credit limit across your credit cards and other loan accounts is $12,000, and you have outstanding balances totaling $4,000. Your credit utilization is 33%, which is slightly higher than the recommended maximum of 30%.
 
Keep tabs on your total balances. Set up automated balance alerts via text or email or make extra payments before your due date to stay under 30%.

Four other factors in your score

Some other factors also impact your score and are worth paying attention to.

Your total debts owed

If you’re carrying a lot of debt, lenders and creditors may worry that you’ll have trouble making yet another monthly payment. Your score will improve if your total debt – especially for unsecured loans like credit cards – is going down over time.

The length of time since you last applied for debt

Every time you apply for a loan or credit card, it creates a “hard inquiry” on your credit report. That lowers your score by several points. Over time, these inquiries fall off, and other factors may raise your score again. In general, try to avoid applying for several new loans within a short period of time.

The length of time your loan accounts have been open

The length of your credit history makes up 10% to 15% of your credit score. The longer your loan and credit card accounts have been open, the better your score.
 
Credit reporting agencies calculate the average age of your credit accounts. That’s why it’s best to keep old accounts open unless there’s some good reason to close them, such as a temptation to overspend using that account or a very high annual fee.

Your credit mix

Lenders like to see that you’re able to manage different types of credit. So try to have a mix, including accounts with a fixed number of payments (like a car loan or mortgage) along with revolving accounts like credit cards.

Seeking new credit? Get prequalified

Applying for credit or a loan places a “hard inquiry” on your credit report and may lower your credit score.

Before applying, get prequalified. You provide some basic information to the lender or creditor so they can determine whether you’re likely to get approved – without dinging your credit score. Getting prequalified isn’t a guarantee that you’ll be approved. (You’ll still need to undergo a credit check.) But it’s a risk-free way to learn whether it makes sense to apply.

What doesn’t affect your credit score

Not all financial actions affect your credit score. Here are some that won’t (although some of these may appear on your credit report and/or be available to companies that check your credit):

• Soft credit checks – A soft inquiry, also called a soft credit check or soft credit pull, happens when you view your own credit report, or someone you authorize, like a potential employer, checks it. Soft credit checks also happen when financial institutions check your credit to preapprove you for a loan or credit card. Because soft credit checks are not tied to a specific application for credit, they don’t impact your credit score.
• Checking your own score – As noted above, viewing your own credit report won’t affect your score.
• Rent – In most cases, your rent payments are not reported to the credit bureaus and do not count toward your score. The exception is if you use a service like Experian Boost, which allows you to add your rent and certain other payment information to your Experian credit report, which can influence your credit.
• Utility payments – Typically, utility payments are not reported to credit bureaus, so they do not affect your score. However, if you pay your utility payments late or not at all, your utility company may send your case to a debt collector. If that happens, the debt collector may report it to the credit bureaus, which can hurt your score.
• Your job and income – Credit reports may include some information about your current job and/or job history, but it is typically used to match the account to the right person. While creditors may consider your income to determine whether you can pay back a loan, it doesn’t affect your credit score. Therefore, getting a raise or a second job to supplement your income won’t raise your score.
• Your checking, savings, and investment account balances – Since credit reports list only credit accounts — not checking, savings, or investment accounts — your balances there won’t help your score. However, these may still be factors that lenders look at, particularly for large loans such as mortgages.

Common Questions About What Affects Your Credit Score

Do medical bills affect your credit score?

If you live in California (and 14 other states), state law prevents your medical debt from affecting your credit score.
 
In some states, medical debt that exceeds $500 and goes into collections can impact your credit score.

Do student loans affect your credit score?

Yes, if you make just one student loan payment 30 days late, it can lower your credit score by 100 points.

Does opening or closing a checking account affect your credit score?

Opening or closing a checking account won’t appear on your credit report. There are certain situations, however, in which it could indirectly affect your credit report.
 
Let’s say you use your checking account to autopay loan payments or your credit card bill. If you close that checking account and forget to switch autopay to your new checking account, your bills may not get paid on time. Those late payments, of course, could show up on your credit report.
 
Also, if you close a checking account that’s overdrawn and you don’t pay off the negative balance, your bank or credit union may report it to the credit bureaus.

Do Buy Now, Pay Later services like Afterpay and Klarna affect your credit score?

Buy Now, Pay Later (BNPL) loans may show up on your credit report.
 
When you choose Buy Now, Pay Later, some BNPL lenders conduct a hard credit inquiry, which can ding your credit score (usually by less than 5 points). Other lenders simply do a soft credit check.
 
Then, over the course of your BNPL loan, the lender may – or may not – report your repayment activity. Or, they may report it only if you make a payment more than 30 days late.
 
Before using a BNPL loan, read the loan agreement so you’re clear about the lender’s reporting policies. You can also contact the lender’s help center.