Skip to main content
Home / Fraud Center

What Factors Affect My Credit Score

Let’s look at the numbers: 300, 850, 697. Those aren’t batting averages or bowling scores — they’re the lowest and highest credit score ranges, along with the average credit score in America, respectively. But what are the credit score factors that determine a credit score? What factors have the biggest impact? And what does and doesn’t affect your credit score?

credit score gauge showing breakdown of scores

How credit scores are factored

You’ve probably never heard of the Fair Isaac Corporation (FICO), but chances are good you’ve got a FICO credit score. FICO is an analytics software company that provides products and services to both businesses and consumers. It’s best known for producing the most widely applied consumer credit scores that financial institutions use in deciding whether to lend money or issue credit.

Lenders, whether they’re a bank, a credit card company or a car dealership, don’t want to take any unnecessary risks when loaning someone money. So before they extend credit, lenders assess a borrower’s credit risk. They look at a number of details, such as income, how long the borrower has been at their job, and the type of credit requested. They also look at borrowers’ FICO scores. FICO scores are taken into consideration in more than 90% of the credit decisions in the U.S.

There are factors that don’t impact a credit score, such as a particular job or amount of income, a borrower’s bank account balance, or their spouse’s credit history (although opening joint credit accounts or co-signing a loan with a spouse  who has shaky credit could affect the other spouse’s credit report).

Several key factors that do affect a credit score

A borrower’s credit score is factored using many different parts in their credit report. The data is grouped into five categories; the percentage after the factor shows how important each category is:
  1. Payment history (35%) — This is a borrower’s history of paying back debts. Are they late? On time? Have they missed payments or completely neglected to pay back a loan?
  2. Amounts owed (30%) — Having a lot of debt doesn’t necessarily lead to a bad credit score. What matters is the ratio of debt (money owed) to the amount of credit available. For example, if someone owes $5,000 but has all lines of credit and credit cards maxed out, that person may have a lower credit score than someone who owes $50,000 but isn’t close to their credit limit on other accounts.
  3. Length of credit history (15%) — Usually the longer a person has had credit, the better their credit score.
  4. New credit (10%) — If a borrower has opened several new accounts in a short period of time, that suggests risk and can lower their credit score.
  5. Credit mix (10%) — This is the variety of accounts a borrower has. To get a higher credit score, a borrower should have a mix of retail accounts, credit cards, mortgages and installment loans, such as a car loan.
It’s understandable that payment history is the one factor that has the biggest impact on a credit score. Lenders don’t want to loan someone money if they have a history of not paying it back.
However, borrowers who want to improve their credit scores should take all five factors into account. A higher credit score often equates to some of the lowest interest rates when a person prepares to borrow money.

How to improve your credit score

Borrowers who want to improve their credit scores need to understand there are no quick fixes. The best thing they can do is to manage their credit responsibly over time. Demonstrating a history as a responsible borrower is key to a healthy credit score. But with discipline and patience, it can definitely be done. Even borrowers with a short credit history — or no history at all — can build and increase their credit score.
Here are six steps all borrowers can take to increase their credit scores:
  1. Pay all bills on time: Again, payment history is the one factor with the biggest impact on a credit score, so pay every bill on time.
  2. Avoid “hard inquiries”: Hard inquiries can include applications for a new credit card, a mortgage, an auto loan, or some other form of new credit. The occasional hard inquiry is unlikely to have much of an effect. But many of them in a short period of time can damage a credit score. Banks could take it to mean that a borrower needs money because they’re facing financial difficulties and see that person as a bigger risk.
  3. Regularly monitor credit reports and dispute credit report errors: But do “soft inquiries” so the credit score doesn’t get dinged. Many banks offer free credit monitoring, which is a soft inquiry.
  4. Aim for 30% utilization or less on credit cards: If a borrower can’t pay their credit card balances in full each month, a good rule of thumb is to keep their total outstanding balance at 30% or less of their total credit limit.
  5. Add a mix of credit: If a borrower only has a mortgage, it may not be enough to show a credit bureau evidence of factors like good payment history or how that borrower manages their overall debt. A borrower can open a line of credit in an area they don’t already have, such as a credit card or taking out a small installment loan for an appliance or furniture, to improve their credit mix.
  6. Get credit for utility and rent payments. If a borrower doesn’t own a home, they can still get credit for their payment history of their monthly rent and utility bill payments by signing up with third-party services, which are often free. These services share a borrower’s positive financial habits with credit bureaus; some require a landlord’s verification, while others don’t.
A borrower can risk lowering their credit score by making these five mistakes:
  1. Missing a payment or making a late payment
  2. Having too much credit in use
  3. Having a short credit history or having no credit history at all
  4. Having too few types of credit
  5. Having too many requests for new lines of credit
What Determines Your Credit Score? 1. Amount Owed (30%25) - This is not necessarily based on the amount of debt, but the ratio of debt (money owed) to the amount of credit available.   2. Payment History (35%25) - This is a borrowers' history of paying back debts.  3. Credit Mix (10%25) - This is the variety of accounts a borrower has. To get a higher credit score, have a mix of retail accounts, credit cards, mortgages and installment loans, such as a car loan.   4. New Credit (10%25) - If a borrower opens several new accounts in a short period of time, this suggests risk and can lower the credit score.

Start improving your credit score today

First National Bank and Trust can help you start building or improving your credit score. You may start by applying for your own credit card with us, or by tapping into our many resources, like educating yourself on credit and debt. You can also stop into any one of our 16 banking locations or contact us to learn how to apply for a loan; open an account; or get expert, Sound Advice on your finances.