What Affects my Credit Score?

Credit scores are influenced by a number of different factors. There are five main categories that affect your score. Each factor has its own value that adds to the whole value of the credit score. Let’s take a look at the five factors that influence your score and what you can do to make your score grow and work for you.

1. Payment History

Your payment history is what makes up 35% of your credit score. This makes it the most influential of the five factors that affects your credit score.

Your payment history demonstrates to your lenders that you can regularly make your payments on time. It can also identify if you are the type that misses a payment every once in a while. Having no late payments will give you a better score. Missing one or two payments might not be completely detrimental to your credit score, but it will cause your score to fall.  More often than not there is no forgiveness for missing a payment, so be sure to pay on time.  Payments can be due on different days and at different times of the month so it may be a good idea to keep a calendar of when all of your due dates are for loans and bills and to make sure you pay them before the due date.

2. Amounts Owed

Amount of debt owed is responsible for 30% of your credit score, making it the second most important factor affecting your score. Amounts owed simply means the amount of debt that you have. The amount of debt is calculated from a number of different sources, such as credit cards, auto loans, mortgages, student loans, and any other type of loan.

For credit cards it is a good idea to only borrow 10% to 20% of your credit limit. For example, if Beehive approves you for a $1,000 credit limit on your credit card you should try to make sure that your balance does not go over $200. This shows that you are borrowing a responsible amount of money and that you have a better chance of repaying the money that you borrow. If you were to borrow 100% of your credit limit, it demonstrates to lenders that they would be taking a higher-risk since the offer they give will likely be taken. From the lender’s view, this means they are risking that the large sum of money they loaned out may not be returned.

3. Length of Credit History

The length of your account history makes up 15% of your credit score. It is calculated mainly by these three things:

• The average age of all of your credit lines or loans that are reported on your account
• How long your accounts have been open
• How long since you used your account last

Knowing that the age of an account on your credit report affects your score, it may be wise to hesitate from opening too many new accounts. Closing old accounts will also impact your score. The key is being balanced. You don’t want to close multiple accounts at once, and you don’t want to apply for several different credit lines within a short period of time either. Spread your applications out over time and remember that the longer an account is open and being reported to the credit bureaus, the better your score will be.

4. New Credit

Adding new credit lines to your credit report makes up 10% of your credit score, so it is important to be getting new lines of credit over time.

Opening new lines of credit in a short period of time could potentially hurt your credit score. If you open several credit cards in a short amount of time you present yourself as a higher-risk borrower because you need more credit. Another aspect of obtaining new credit is the amount of inquires into your credit. Too many hard inquires into your credit score can actually lower your score. That’s why new lines of credit are important, but should be taken out in moderation and spread out over time.

New credit can be a double-edged sword. Although adding new accounts is healthy for your credit score, it also lowers the average age of your credit history, as we discussed earlier. Create a healthy balance of credit sources and make sure you are not being too aggressive in applying for loans or credit cards; spread inquiries out over time.

5. Types of Credit Used

The last 10% of your credit score is your credit mix; meaning the different kinds of loans that you may have. This includes the mix of credit cards, auto loans, mortgage loans, and student loans, etc.

Having some diversity in types of credit used is good. You do not have to have one of each in order to have a great credit score, but having a good variety of installment and revolving loans can help build your credit score. Having a credit card and an auto loan will help build your score much better than just having one or the other.

To learn more about your credit score or to see additional articles about building credit, visit our Building Credit page.

There are three major credit bureaus: Experian, Transunion, and Equifax. As a consumer, federal law allows you to request a free copy of your credit report from each of these three credit reporting companies once every 12 months. Reviewing your credit report will help keep you vigilant in preventing identity theft and fraud, as well as keep you informed of your credit history. It will also allow you to verify that your personal information, often collected by a financial institution or employer when checking your credit report, is correct and up to date. Learn more about requesting a free copy of your credit report.