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Factors That Affect Your Credit Score

Factors That Affect Your Credit Score

Your credit score is one of the factors that lenders use to determine if you’re eligible for a loan or mortgage and how much you can expect to pay as a result. If your credit score isn’t in great shape, it can make it difficult or even impossible to get financing for a car, a house, or any other type of loan. Your score can only improve if you do certain things correctly, like paying your loan on time. And keeping tabs on your credit score and its impact on your ability to borrow money will help keep things in check. Your credit score is more than just a number; it indicates how lenders perceive your ability to pay back debt. Understanding what affects your credit score can open up new doors regarding financing opportunities in your future.

What is a Good Credit Score?

Your credit rating is based on your financial history and is rated by a three-digit number. The higher your score, the better, as it will make it easier for you to get approved for loans and other types of credit. At the same time, a lower score will make it more difficult to obtain credit and could cost you more if you do. The specific numbers vary depending on your credit bureau and the type of scoring model used. Your credit score should be as close to 700 as possible, or even higher. At that point, you can typically expect the best terms on loans, like a mortgage or auto loan, and the lowest interest rates.

Factors That Affect Your Credit Score

Most lenders and financial institutions consider your credit score a lot when seeking a loan. It’s also one factor that can positively or negatively impact your future ability to get credit and the interest rates you are offered. Your credit score indicates your creditworthiness, which tells lenders if you are likely to repay your loans. If you’re planning to apply for a mortgage, car loan, student loan, personal loan, or any other type of loan soon, it’s good to know what affects your score so you can improve it before applying.

Below are factors that affect credit score, and the good thing is that they're controllable.

1. Credit Utilization

Your credit card debt divided by your credit card limits equals your credit utilization rate. This is the proportion of your credit card debt compared to your available credit. Normally, credit card utilization ratio is determined by dividing the credit card balance by credit card limits. Believe it or not, credit utilization accounts for 30% of your credit score. As such, it is a significant factor when determining the credit score. A low credit utilization rate, means there is a positive impact on your credit score. A high credit utilization rate has a negative impact on your score. You can control your credit utilization rate by paying off some or all of your credit card balances. If you need to take out a loan, keep your overall credit utilization rate below 30% by paying off some of your credit card balances before applying.

2. Age of Your Accounts

Your credit score depends on the age of your accounts. The older the account is, the better. As you open accounts, they will look less favorable on your credit report. You don’t want to close them, though that will revive the account and make it look brand new again. Having an account is the highest mark of age. When you close an account, it just disappears from your credit report. Bureaus like to see that you've had an account for a long time.

Having an account is treasured as the highest age mark. When you close an account, it is removed from your credit report. You’re not paying money monthly but also not building a payment history. It is essential to maintain the accounts open.

3. Types of Credit You Have

It’s critical to have a range of financial accounts as you begin your credit journey. Combining revolving accounts and installment loans can help raise your credit score. Remember that credit cards are installment loans, which can help boost your score even if you only have a single credit card. Meanwhile, installment loans (like car loans) are revolving accounts, but they’re less likely to affect your credit score. That’s because they’re longer-term loans, which give you more time to pay them off.

4. Credit Mix

Another factor that affects your credit score is the "credit mix," which is the combination of different types of loans you have. If you have only one type of loan, such as credit card debt, it has a negative impact on your score. But if you have a combination of different types of loans, such as credit card debt, car loans, mortgages, and student loans, it positively impacts your score. 10% of your credit score is accounted for by the credit mix. If you have a wide variety of types of credit, it’s a good idea to keep them all current regularly.

5. Your Debt-To-Credit Ratio

Your debt-to-credit ratio is one of the factors that lenders use to determine your credit score. It breaks down the amount of debt you have compared to the amount of available credit. Generally, you want the ratio to be less than 30% for all credit types. Again, credit cards are instalment loans that help your score. When you have too much debt, it can make it difficult to get credit. And it can also impact your ability to get better interest rates.

6. How Much Available Credit You Have

In addition to your debt-to-credit ratio, your available credit is also part of your credit score. Credit bureaus look at your total amount of credit compared with your total amount of available credit. Again, you want to keep those numbers below 30%. If you have credit cards, keep your use to 30% or less each month. You can get a free credit report and score from Experian credit report. You can see where you stand and what you can do to improve your score.

7. New Credit and Your Score

New credit is any account open for less than a year. Credit bureaus like to see a mix of old and new credit. New credit is usually a sign that you’re in the process of taking on new debt. That’s not necessarily bad, but it can make getting approved for loans harder and lower your credit score. That’s because new credit is treated as a riskier way to borrow money. Lenders don’t have as much information about you and will typically charge a higher interest rate. If you need to take out a new loan, consider waiting a few months until your credit score has recovered somewhat.

8. Debt Behavior

This refers to the number of times you have gone into debt during the past couple of years. If you have had to go into debt a lot during the past couple of years, it has a negative impact on your score. If you have not gone into debt very often, it positively impacts your score. Debt behavior accounts for 10% of your credit score. If you have to go into debt, consider paying off some of your existing debt to reduce your overall debt load.

9. Recent Credit

The length of time that your credit accounts have been open is also a factor that significantly impacts your credit score. The less time you've had credit accounts open, the better your recent credit history. If you’ve opened many new accounts recently, it will negatively impact your credit score, regardless of how long you’ve had them open. A good credit history for a long period will positively impact your credit score. The credit score model considers the length of time you’ve had your credit accounts open when calculating your credit score, and it significantly impacts your score.

10. Confirmation

The status of your existing credit accounts, including whether they've been confirmed, is another factor that affects your credit score. If you have an existing credit account that is listed as “unconfirmed,” it has a negative impact on your score. Your account confirmation has a positive impact on your score. If your credit has been negatively impacted, you can add a positive factor to your credit score by contacting your credit card company and asking them to confirm your account.


Your credit score affects your ability to borrow money from a financial institution, like a bank or credit union. Having poor credit may make it difficult to get a loan and pay high interest rates. It is vital to ensure your credit score improves by paying your bills on time, staying below your credit limit, and keeping new credit accounts to a minimum.

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