What Really Affects Your Credit Score?

 

Your credit score can play an important role when you're applying for a credit card, vehicle loan, mortgage, or other financing.

But many people focus only on the number without understanding what information is actually affecting that number.

Credit-scoring models can differ, but several major parts of your credit profile commonly influence your scores.

Here are 7 things you should understand about what affects your credit score.

1. Payment History Matters

Your payment history can be one of the most important parts of your credit profile.

Late payments, collections, charge-offs, and other negative payment information may affect your scores.

Making your payments on time and keeping your accounts current can help you build a stronger payment history.

One missed payment can potentially remain on your credit report for years, so don't wait until an account is seriously past due before taking action.

2. Credit Card Balances Can Affect Your Scores

How much revolving credit you're using compared with your available credit is commonly called credit utilization.

For example, if you have a credit card with a $5,000 limit and you're carrying a $4,500 balance, you're using 90% of the available credit on that card.

Even if every payment has been made on time, high utilization can potentially affect your credit scores.

Reducing revolving balances may help improve this portion of your credit profile.

3. The Age of Your Credit History Matters

Credit-scoring models may consider how long you've been managing credit.

Older established accounts can contribute to the length of your credit history.

This is one reason you shouldn't automatically close an older credit card simply because you aren't using it very often.

Closing an account may affect your available credit and other parts of your credit profile.

Before closing an older account, understand how that change could affect you.

4. New Credit Can Affect Your Profile

Applying for credit may result in a hard inquiry appearing on your credit report.

One application isn't necessarily a major problem, but repeatedly applying for new credit within a short period may affect your credit profile.

Opening several new accounts can also reduce the average age of your accounts.

Apply for credit because you have a reason and a plan for it—not simply because someone offered it to you.

5. Your Credit Mix Can Play a Role

Credit reports can contain different types of accounts.

These may include:

Credit cards
Auto loans
Mortgages
Personal loans
Student loans
Other installment accounts

Some scoring models consider the different types of credit you have successfully managed.

That doesn't mean you should open accounts you don't need simply to create a particular credit mix.

Your goal should be to responsibly manage the accounts that make financial sense for you.

6. Inaccurate Information Can Affect Your Credit

Your credit score is calculated using information contained in your credit reports.

If information being reported is inaccurate, incomplete, or doesn't belong to you, that information could potentially affect your credit profile.

That's why reviewing your credit reports is important.

Look carefully at:

Account ownership
Balances
Payment history
Account status
Opening dates
Collections
Credit inquiries

If you believe information is inaccurate, investigate it and determine whether it should be disputed.

7. Don't Focus Only on the Score

Your credit score is important, but the number doesn't tell you everything about your credit.

Two people could have similar scores while having completely different credit profiles.

One person might have high credit card balances.

Another might have a recent late payment.

Someone else could have a collection account or very little established credit history.

Instead of asking only:

“What's my credit score?”

A better question can be:

“What's causing my credit score to be where it is?”

Understanding the information behind the number gives you a better opportunity to determine what may need improvement.

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