These Factors Can Significantly Impact Credit Scores

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These Factors Can Significantly Impact Credit Scores

Written by Matthew Taylor
Fact-checked by Caitlin Wood

These Factors Can Significantly Impact Credit Scores


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Building credit is hard, but so is maintaining it. This is why it’s so important to understand not only how credit scores are calculated but also the financial habits that can negatively impact credit ratings.

Which factors can impact a credit score the most?

The five factors that are considered in the calculation of credit scores are payment history, credit utilization, credit length, credit mix, and new credit inquiries. Read on to learn more about each of these factors and how they can help or hurt credit health.

Payment History

By you consistently pay off your credit cards and loans in full and on time, you can build a positive payment history. Payment history accounts for about 35% of how a credit score is calculated.

Your payment history is affected by:

  • Late bills – Paying bills late looks bad to lenders. The later you pay, the worse a credit score can be.
  • Debt sold to collections – To a potential lender, a credit account that’s been sent to collections looks like you aren’t financially responsible enough to handle debt. 
  • Items of public record – Bankruptcies, lawsuits, debt settlements, charge-offs, foreclosures, wage garnishments, public judgements, and liens all look bad to a lender.
  • Time since a negative event – Negative event recency and frequency can impact credit scores. More frequent negative events and more recent negative events could perhaps have a negative impact on a credit rating.

We recommend that people pay their bills on time and in full if possible to maintain a good payment history.

Credit Utilization

Your credit utilization is determined by how much of your available credit limit you use. For example, if you have a credit card with a $1000 limit and you charge $500 worth of purchases to it, your credit utilization will be 50%. . Your credit utilization counts for 30% of the calculation of a credit score.

Credit utilization is affected by:

  • High credit card balance – If you constantly use up all your available credit, it can look like you might have trouble repaying it. The general rule is that you should use no more than 30% of your available credit to maintain a good credit utilization ratio. 
  • No credit utilization – Lenders want to see that you can pay back the money you borrow. While carrying too much debt is never a good idea, if you can’t use credit at all you won’t be able to build a healthy credit history.

Credit Length

Credit length refers to how long you’ve been using credit. It counts for 15% of a credit score. The longer the credit history, the better a credit score can be.

Credit length is affected by:

  • Closing old accounts – Doing so reduces credit length, which can impact credit ratings.
  • Opening new accounts – Credit length depends on the average age of credit accounts, so opening new accounts could temporarily negatively impact a credit score.
  • How long it’s been since you’ve used the accounts – Fully-paid off credit accounts, such as credit cards, are usually closed after a year of inactivity. Closed accounts are removed from credit reports after 10 years.  

It’s always a good idea to keep your older credit accounts open and active. If you want to reduce the number of accounts you have to manage, it might be better to close the newest ones if possible.

Check out how a decrease in credit card credit limits can impact credit scores.

Credit Mix

Credit mix is all the different types of credit you have, like credit cards, auto loans, personal loans, and mortgages. This counts for 10% of a credit score.

Credit mix is affected by:

  • The types of credit you have – Maintaining multiple types of credit in good standing shows healthy and diverse use of credit.
  • How many total accounts you have – Having many credit accounts but managing credit well can show healthy use of credit.

Make sure to have several types of credit and manage them all well to maintain healthy credit ratings.

Credit Inquiries

Whenever you apply for more credit, lenders usually check credit information by doing what’s called a “hard inquiry”. These can lower a credit score. Credit inquiries count for 10% of a credit score.

Credit inquiries are affected by:

  • Hard and soft inquiries – Hard inquiries affect a credit score temporarily, but soft inquiries, like retrieving your own credit information, do not. 
  • Multiple inquiries – Since a hard inquiry happens whenever you apply for new credit, multiple inquiries all with a short amount of time can make it look like you’re a high-risk borrower. The reason for this thinking is because a potential lender may think you’re taking on too much debt or have been rejected by many other lenders.

We recommend you try not to apply for a lot of new credit at once to avoid too many hard inquiries on your credit report.

Check out the 7 entities who can check credit

Bottom Line

Building and maintaining credit is important. A poor credit history can limit one to lenders that only offer financing with high costs of borrowing. Maintaining good credit history can help increase access to more affordable credit.

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