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The 5 Things That Affect Your Credit Score

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Knowing your credit score is an important part of managing and maintaining your financial health, but knowing the score alone isn’t enough. It’s also important to understand how your credit score is calculated and the key factors that are used in the calculation. Without understanding the core foundation of how credit scores read and interpret your credit report data, you have no way of knowing whether or not your financial habits are helping — or hurting — your credit score.

Top 5 Factors That Affect Your Credit Score

1. Payment History

Your payment history accounts for 35% of your credit score — more than any other single factor. If you pay your bills on time and never miss a payment, you are rewarded and will do well in this category. If you have a history of missing payments or paying late, you will not.

Negative Traits: Late payments, missing payments, charge-offs, collections, judgments, liens, foreclosures, bankruptcy. If you have missed a payment, or have been late in the past, the best advice is to get current and stay current. The longer you pay on time, and the older the late payments get, the less impact they will have.

2. Debt

Are you carrying a lot of debt? How much do you debt do you owe? Your debt accounts for 30% of your credit score — almost as much as your payment history. Some debt is good, but too much debt can hurt you — especially credit card debt.

Negative Traits: High credit card balances, maxed out credit cards, too many accounts with balances — all of these characteristics point to high credit risk and will negatively impact your score.

3. Length Credit History

How long have you had credit? This factor accounts for 15% of your credit score and looks at your track record of having credit accounts and managing them well over time. The longer you’ve had credit, the better.

Negative Traits: Very new or recently opened accounts, or little to no history of credit. Unfortunately, the only thing that can build your credit score in this category is time. If you have recently opened an account you’ll need to give it time to age before you’ll see a positive effect from the account’s history in your credit score.

4. New Credit

How often you apply for credit accounts for 10% of your credit score. Every time you apply for credit an inquiry will post to your credit report showing that you’re actively searching for credit. Excessively shopping for credit and too many inquiries in a short period of time can hurt your score.

Negative Traits: Applying and opening too many accounts in a short period of time. By law, inquiries remain on your credit report for 24 months — but only inquiries in the last 12 months will be counted in your credit score.

5. Credit Mix

The types of credit you have accounts for the remaining 10% of your credit score. This includes credit cards, auto loans, mortgage loans — and having a healthy mix will insure you score well in this category. Having too many, or only one type of account can actually hurt you in this category. When it comes to credit scores, diversity is key and credit scoring models like to see that you can maintain and manage a number of different types of credit accounts.

Negative Traits: Having only one type of credit account (all revolving/credit cards, for example), having a finance company account, or not having a mortgage loan account can all negatively affect your credit score in this category.

Now that you know the core factors that affect your credit score you should be able to use what you’ve learned to maximize your own credit score. You can use Credit.com’s Credit Report Card to get your score and monitor your credit-building progress — for free. After all, having an excellent credit score can make all the difference in the world when it comes to your personal financial options.

Image: D. Sharon Pruitt, via Flickr

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  • Sherri

    I can’t believe you’re advising your readers they always need to have a mortgage balance to have good credit. Ours will be paid off next year and that’s one debt we will never have again. Unbelievable advice!

    • Deanna Templeton

      Hi Sherri — I understand and respect your opinion, but I think it’s important to point out that the purpose of this article was to illustrate the facts and how credit score rate your credit report data — including what affects your score both positively and negatively. When it comes to the FICO score model, the history of a mortgage tradeline earns more score points and is viewed as “positively.” No where in this article did I advise that readers “always need to have a mortgage balance to have good credit.” Plenty of consumers without mortgages have perfectly good credit scores, and credit mix is only a small portion (10%) of your total credit score. I have never, nor will I ever, advise anyone to overextend themselves by taking on a mortgage loan that they cannot afford. Owning a home is personal decision and individual financial situations should absolutely be part of the decision process.

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  • Cindy

    It says that having a finance company account can negatively affect your credit. Is this true or am I reading it wrong? What if the finance company account is paid in a timely manner? I recently got one and they told me it would better my credit, not harm it. Please advise. Thanks

    • http://www.Credit.com/ Gerri Detweiler

      It can depending on how it is reported and the scoring model being used. But don’t panic. Order your free annual credit reports to see how the account is being reported.

  • ty

    how will adding my name to a mortgage already in my wife’s name for over 2 years impact my credit score? The mortgage has been current the whole to years. Meaning no late payments.

    • Gerri Detweiler

      Ty – Very likely soon after you are added to the account the entire account history will start appearing on your credit reports. That will likely be a good thing since she has always paid on time.

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  • Diana Georgieva

    is it better to close credit cards that are not used but are old (long history) or shall I still keep them open even no longer used?

    • http://www.Credit.com/ Gerri Detweiler

      Best to keep them open unless they are charging you an annual fee you don’t want to pay.

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