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What Affects Your Credit Scores?

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Updated January 29, 2024

Your credit score might seem like three insignificant numbers, but it can have a major impact on your life. If you have a good credit score, you will likely have no trouble being approved for loans and credit cards. But if your score is low, you may find it almost impossible to get approved for these financial products. That’s why it’s important to learn what affects your credit score.

There are two types of credit score: FICO Score and VantageScore. Each calculates its scores using similar factors, although there are some areas where the two differ. Below, learn about the main factors each uses to calculate your credit score so you can make a plan to improve yours.

MyFico credit score

MyFico credit score

Brand name
Myfico
Monthly fee
$19.95 to $39.95 per month
Credit scoring model used
FICO
Identity insurance
Up to $1 million

Factors that affect your credit score

There are several factors that can affect your credit score, though some are more important than others. Both FICO and VantageScore place similar weight on these factors when calculating credit scores.

Payment history

Your payment history is the most important factor that can affect your credit score. If you pay your bills on time and make at least the minimum payment on your credit cards, you’ll likely see your credit score go up. However, if you miss payments or default on any loans or lines of credit, your credit score can drop quickly. Setting up automatic payments can help ensure you’re paying your bills on time.

FICO: 35%

VantageScore 4.0: 41%

Credit usage

The second most important factor that affects your credit score is credit usage, or credit utilization. This factor takes into account how much of your available credit you’re using. Ideally, you’ll keep your credit utilization under 30%. For example,if you have a $10,000 credit limit across several cards, you won’t want to have a total balance of more than $3,000. Maxing out your credit cards not only makes them harder to pay off, but it can also negatively affect your credit score.

FICO: 30%

VantageScore 4.0: 20%

Length of credit history

The third most important factor is the length of your credit history. If you just started building credit, your score will be much lower than it will be after a few years of responsible financial behavior. It’s also wise to keep older credit cards open, even if they’re paid off and you no longer use them, to increase your credit history length.

FICO: 15%

VantageScore 4.0: 20%

Credit mix

The type of credit accounts you have will also affect your credit score. Ideally, you’ll have a mix of installment loans (such as a car loan or a mortgage with a set term and payoff date) and revolving credit (such as credit cards or other lines of credit without a set term).

FICO: 10%

VantageScore 4.0: N/A

New or recent credit

The amount of new lines of credit you have can affect your credit score, though not as much as some of the other factors. Applying for too many credit cards at once can have a detrimental effect on your credit score, so it’s best to space out applications to prevent this from happening.

FICO: 10%

VantageScore 4.0: 11%

Balances

VantageScore takes into account the balances on your credit cards. High-balance cards can decrease your credit score, even if you’re current on payments. Ideally, you’d pay off your cards in full each month, though if that’s not possible it’s not the end of the world since VantageScore only counts this toward 6% of your total credit score. FICO does not consider this factor.

FICO: N/A

VantageScore 4.0: 6%

Available credit

The final factor is the amount of available credit you have across all your credit cards. FICO does not consider this, and VantageScore only weighs this factor at 2% so it’s better to focus on the more important categories while keeping your available credit amount in mind.

FICO: N/A

VantageScore 4.0: 2%

Types of accounts that affect your credit score

One of the factors that affects your FICO Score is credit mix. In essence, this means the types of loans you have. There are two types of credit accounts that fall into this category: Installment loans and revolving credit.

Installment loans

An installment loan is one that has a set term and payoff date. Some common examples include mortgages and auto loans. When you take out an installment loan, the lender will specify the length of the loan and the interest rate, and will calculate your monthly payments from there. The amount you owe will never change, and once the loan is paid off, you’re done with the loan.

Revolving credit

Revolving credit is an amount you can borrow from and pay back multiple times. Examples include credit cards and home equity lines of credit (HELOCs). You’ll be given a credit limit and can borrow up to the amount allowed. You’ll pay it back monthly, either in full if you can or by paying a minimum monthly amount. If you carry a balance month over month, the lender will apply interest to your account, which increases the amount you owe—but if you’re able to pay off your balance in full each month you’ll avoid accruing that interest.

Number of accounts that affect your credit score

Having too many credit card accounts can certainly have an impact on your credit score. Every time you apply for a credit card, the lender will run a hard credit check. This has a slightly negative impact on your credit score, but only temporarily. Applying for multiple cards or loans in a short period of time increases the negative effect because it suggests you’re a risky customer to lend to.

Although FICO and VantageScore won’t punish you for having too many credit cards, you may find it harder to keep current with payments. A single missed payment can ding your credit score, and missing several can have a serious impact. In general, it’s recommended to have at least five accounts (a mixture of installment accounts and revolving credit), though the right number for you will depend on your financial needs and what feels reasonable to you. With fewer than five accounts, you may be considered to have a thin file, which makes it harder for FICO and VantageScore to evaluate your financial behavior and calculate your credit score.

TIME Stamp: Your payment history has the biggest impact

Paying your bills on time each month is the easiest way to make a positive impact on your credit score. If you’re late on any credit card or loan payments (or even utility payments) you’ll see a decreased credit score pretty quickly.

Frequently asked questions (FAQs)

How can you improve your credit score?

The best and fastest way to improve your credit score is to make sure you pay your bills on time each month. It’s also advisable to avoid maxing out your credit cards and keeping your overall credit utilization at or below 30%.

What can you do if you don’t have a credit score?

If you don’t have a credit score, the best option is to apply for one of the best secured credit cards. Most secured credit card issuers don’t run a credit check as part of the application process. Instead, you’ll put down a sum of cash upon opening the account that acts as collateral and decreases the risk for the lender. When shopping for secured credit cards, make sure the lender you choose reports to the three major credit bureaus in order to start building your credit.

What are the best credit cards to build credit?

The best credit cards with no credit check are secured credit cards. Whether you’re just starting out or trying to rehab a low credit score, a secured credit card can help you build credit.

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