What Affects Your Credit Score?

Which of the following most influences your credit score: banks and credit card companies, credit reporting bureaus, or you? Ultimately, it’s your own behavior.¹ Each time you take out a loan or use your credit card and each time you make a payment (or don’t), that action is likely to influence your score.¹ After all, your credit score is nothing more than a report card on how you manage your financial obligations.¹ To learn more about credit scores, read “What Is a Credit Score?"

Naturally, therefore, it can help you to know how much different actions could affect your credit score. Fortunately, it’s not as mysterious as it may seem. First, the leading credit score providers – Fair Isaac Corporation (FICO) and VantageScore Solutions – both share general guidelines about how their scores are calculated.^1,2 And second, technology now lets you see those guidelines in action. You can access several online credit score simulators that estimate the impact of specific actions. One is the FICO^® Score Simulator, which you can access for free by enrolling in MyCredit Guide from American Express^®. (FICO is a registered trademark of Fair Isaac Corporation in the U.S. and other countries.) 

Based on FICO and VantageScore guidance, plus my own experience with the credit score simulator, these are the actions likely to affect your credit score, listed from most to least impactful:^2,3

• Payment habits. Are your payments on time or late – and if late, how late and how often?

• Credit utilization rate. How much are you using of the total credit available to you?

• Credit history. Have you been responsible with debt for a long time?

• Debt mix. Are you experienced with a variety of different types of credit and debt?

• Credit inquiries. How often do you open new credit card accounts or apply for loans? 

Let’s dive deeper into what the credit score simulator showed about how each of these affected my credit score.

Experts agree that paying your bills on time has the greatest effect on your credit score.⁴ FICO says payment history accounts for 35% of your FICO score.² VantageScore, which does not disclose percentages, describes payment history as “extremely influential” in its scoring system.³

If you do have to pay late, it likely won’t affect your credit score until it’s more than 30 days past the due date.⁵ Experts say that one late payment can have a negative impact, but it may diminish with time and good payment behavior on all of your accounts.⁵ My experience with the MyCredit Guide credit score simulator demonstrated this. One late payment had little effect, but making late payments to all my creditors dropped my score a whopping 19%.

Experts also caution that the later your payment gets, the greater the negative impact.⁶ Payments that are 60 or 90 days late will likely hurt your score more than those that are 30 days late.⁶ Again, the MyCredit Guide simulator proved the point. Letting all my accounts fall 90 days behind cost me almost a quarter of my score and dropped me two ranges. For more on how lenders interpret the scoring ranges, read “Credit Score Ranges: What is an Excellent, Good, or Poor Credit Score?”

Experts also say that serious payment issues – such as charge-offs, collections, foreclosures, tax liens, or bankruptcy – can damage your credit score.⁷ These may remain visible on your credit report for as long as a decade.⁸ In the MyCredit Guide simulator, a single account going to collections decreased my score by 6%.

The next greatest effect on your FICO credit score is the amount of credit you use as a portion of how much is available to you, known as your credit utilization rate.⁹ FICO says it counts for 30% of your FICO^® Score.⁹ VantageScore calls it “highly influential,” and gives it the second greatest weight of all factors in its scoring model.³ Experts say that when your utilization exceeds 30% it hurts your score.³

FICO says that credit history counts for 15% of your FICO score,¹⁰ and VantageScore describes it as “highly influential.”³ Two things influence this portion of your score: the age of your oldest account and the average age of your combined accounts.^3,10 Lenders value history, so experts caution that opening new accounts can work against you because it lowers the average age of your accounts.¹¹

Experts also caution against looking at these elements in isolation.² For example, opening a new credit card account may have an initial negative impact on the credit history portion of your score. But experts say this may be offset by an improvement in the utilization rate component of your score, because the total amount of credit available to you increases when you open the new account.¹¹

Lenders want to see that you can effectively manage different kinds of debt, which is why FICO says your credit mix accounts for 10% of your score, and VantageScore labels it “highly influential.”^3,13 Experts say that having a portfolio that includes only credit cards or only installment loans (such as an auto loan or mortgage) has a small but negative impact.¹³