What factors influence your credit score?

Your credit rating, which is reflected in your credit score, is influenced by a variety of factors. Understanding these factors is crucial for managing and improving your credit. Here are the key elements that shape your credit rating:

1. Payment History (35% of FICO Score):

   • The most influential factor in your credit score is your payment history. Lenders want to see a history of on-time payments for credit cards, loans, mortgages, and other credit accounts. Late payments, missed payments, and collections can significantly lower your score.

2. Credit Utilization (30% of FICO Score):

   • Credit utilization measures how much of your available credit you're using. A high credit card balance relative to your credit limit can negatively impact your score. It's recommended to keep your credit utilization below 30%, but lower is even better.

3. Length of Credit History (15% of FICO Score):

   • The length of your credit history considers how long you've had credit accounts and the average age of your accounts. Longer credit histories generally have a positive effect on your credit score.

4. Types of Credit (10% of FICO Score):

   • Credit scoring models look at the different types of credit accounts you have, including credit cards, installment loans (like auto loans), mortgages, and retail accounts. A mix of credit types can positively impact your score.

5. New Credit (10% of FICO Score):

   • Opening multiple new credit accounts in a short period can be seen as risky behavior and may lower your score. Each credit inquiry for new credit can also have a small negative impact.

6. Credit Account History:

   • This factor considers the age of your oldest and newest accounts and the overall age of your credit history. A longer credit history with a mix of old and new accounts can be beneficial.

7. Public Records and Derogatory Marks:

   • Bankruptcies, tax liens, judgments, and other negative public records can significantly damage your credit score.

8. Hard Inquiries:

   • When you apply for new credit, lenders typically request a credit report, resulting in a hard inquiry. Multiple hard inquiries within a short period can negatively impact your score. However, inquiries for mortgage or auto loans within a specific timeframe are often treated as a single inquiry to minimize this impact.

9. Credit Account Management:

   • Responsible management of credit accounts, such as keeping credit card balances low, making payments on time, and avoiding overextending yourself financially, can positively impact your credit.

10. Credit Report Errors:

    • Errors on your credit report, such as inaccurately reported late payments or accounts that don't belong to you, can harm your credit. Regularly reviewing your credit reports and disputing errors is essential.

11. Credit Age Diversity:

    • Having a mix of older and newer credit accounts can be beneficial. However, closing your oldest accounts can potentially shorten your credit history and impact your score.

12. Credit Card Balances:

    • High credit card balances relative to your credit limits can increase your credit utilization ratio, negatively impacting your score. Paying down balances can improve this ratio.

13. Payment Frequency:

    • Consistently making on-time payments on all of your credit accounts is essential for maintaining a good credit score.

14. Credit Monitoring and Management:

    • Regularly monitoring your credit reports and managing your credit responsibly are key factors in maintaining and improving your credit rating.

15. Financial Hardships:

    • Major financial hardships, such as bankruptcies, foreclosures, and repossessions, can have a severe negative impact on your credit but may improve over time with responsible credit behavior.

It's important to note that credit scoring models may differ slightly in how they weigh these factors, and different lenders may use different scoring models. Additionally, factors outside of your credit report, such as income and employment, are considered by lenders when making credit decisions.

To maintain and improve your credit rating, focus on responsible credit management practices, such as making on-time payments, keeping credit card balances low, avoiding excessive new credit applications, and regularly monitoring your credit reports for accuracy. Over time, these actions can help you build and maintain a strong credit history.