What Affects Your Credit Score?
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Your credit score is a major factor that determines your ability to borrow money, and the costs you'll pay when doing so. And while some of the things that make up your credit score -- like paying bills on time -- is common knowledge, much of the information that affects your credit score isn't well understood by most consumers.
In this article, we'll take a closer look at the information that impacts your credit score. The most popular credit scoring model (by far) is the FICO® Score, which is used in more than 90% of lending decisions. So, we'll focus on that one, although there are other credit scoring models (the VantageScore is the second most popular) that may have somewhat different methodologies.
The actual FICO formula is a well-guarded secret. For example, there's no way to know exactly what combination of information will result in a particular score. But we do know the information used in the formula and how much weight each category carries.
This shouldn't come as a surprise. The most important factor in your credit score is your payment history. Lenders want to know that you're likely to pay your bills on time, so it's only natural that this is the most important area of focus.
As a result, the most surefire way to increase your credit score over time is to pay all of your bills on time every month. Conversely, since it's such an important part of your credit score, making even one late payment can have a big negative impact on your credit that can take time to rebuild from.
The types of accounts typically used to gather your payment history data include (but are not necessarily limited to) credit cards, installment loans (like auto loans), and mortgages. If you have other credit lines, like a home equity line of credit (HELOC), those are typically included as well. Adverse information such as bankruptcies and legal judgments are also included in the payment history category.
The next largest factor in your FICO® Score is the amount of money you owe to your creditors, which accounts for 30% of your score.
However, this doesn't necessarily mean the dollar amounts of your debt. This category has more to do with your credit account balances relative to your available credit limits, and your loan balances relative to their original amounts. This is a concept known as credit utilization ratio.
For example, if you have a credit card with a $5,000 limit and have a $2,000 balance, you're using 40% of your available credit. On the other hand, if you have a $4,000 balance on a card with a $20,000 limit, you're only using 20% of your credit. The latter situation could be considered more favorably in your FICO® Score even though the amount you owe is higher.
Experts typically suggest keeping your credit account balances at or below 30% of your available credit, and even lower than that is better.
You don't need a long and established credit history to have a great FICO® Score, but it is one of the categories of information that is used in the calculation. Generally speaking, a longer credit history is better than a short one.
Specific time-related factors include the age of your oldest and newest credit accounts, the average age of all of your credit accounts, and how long each of your individual credit accounts have been open.
You may have heard that if you apply for new credit, your FICO® Score could go down. It's true, and this category is why. Research has shown that applying for too many new credit lines within a short period of time is an indicator of higher credit risk.
This includes credit inquiries, as well as newly opened accounts. To be sure, a single credit inquiry (also known as a hard credit check) or new account isn't likely to have much of an impact. But if you're applying for several new credit accounts at the same time, it could have a significant effect on your credit score.
This is one that many people don't realize is a data point. The FICO formula considers the variety of account types reported on your credit file. In other words, if you have a mortgage, an auto loan, and a credit card account, it could be better than having just three credit card accounts.
Fair Isaac, the company behind the FICO® Score, has said that the credit mix category is most important for people who don't have a ton of information in the other credit scoring categories. For example, if you have a relatively short credit history, a good credit mix could help increase your credit score.
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5 stars equals Best.
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We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
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SoFi disclosure:
¹ New and existing Checking and Savings members who have not previously enrolled in Direct Deposit with SoFi are eligible to earn a cash bonus of either $50 (with at least $1,000 total Direct Deposits received during the Direct Deposit Bonus Period) OR $300 (with at least $5,000 total Direct Deposits received during the Direct Deposit Bonus Period). Cash bonus will be based on the total amount of Direct Deposit. Direct Deposit Promotion begins on 12/7/2023 and will be available through 1/31/26. See full bonus and annual percentage yield (APY) terms at sofi.com/banking#1.
² SoFi members who enroll in SoFi Plus with Direct Deposit or by paying the SoFi Plus Subscription Fee every 30 days or with $5,000 or more in Qualifying Deposits during the 30-Day Evaluation Period can earn 3.80% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. Members without either SoFi Plus or Qualifying Deposits, during the 30-Day Evaluation Period will earn 1.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Only SoFi Plus members are eligible for other SoFi Plus benefits. Interest rates are variable and subject to change at any time. These rates are current as of 1/24/25. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet. See the SoFi Plus Terms and Conditions at https://www.sofi.com/terms-of-use/#plus.
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Beyond the five categories of information mentioned above, there is no other information that impacts your FICO credit score.
Having said that, there is other information that could affect your ability to obtain credit through a lender. For example, mortgage lenders will typically verify your employment history to determine your likelihood of repaying your loan, even though it isn't reflected in your FICO® Score. And, lenders of all kinds are likely to verify your income to determine your ability to repay.
It's also important to know what doesn't affect your credit score. For example, your race, color, religion, sex, national origin, or marital status has absolutely no impact on your score. There's a popular misconception that if you get married, your spouse's credit score can adversely affect yours if they have bad credit, and this is 100% false.
In addition, these factors will have no impact on your FICO® Score:
This isn't an exhaustive list, and the point is that unless a piece of financial information falls into one of the five categories discussed earlier, it won't impact your FICO credit score. FICO isn't the only credit scoring model, and other (lesser used) scoring methodologies might include one or more of these things, but it isn't likely to affect your ability to obtain credit approval in the real world.
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The single most important component of your credit score is payment history, which accounts for 35% of the FICO® Score. This is closely followed by the "amounts owed" category at 30%.
There's no set-in-stone rule, but generally speaking, a single credit inquiry will have very little impact on your credit score. On the other hand, several hard inquiries within a few days (or even a few months) can have a significant impact.
Possibly. Closing an account can affect your credit score in a few ways. If it was a long-established account, it can hurt you in the "length of credit history" category. And by closing a credit line, it reduces your available credit, which can give you a higher credit utilization in the "amounts owed" category.
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