8 Min Read | Updated: October 31, 2023

Originally Published: July 31, 2020

What Affects Your Credit Score?

There are many factors that can influence your credit score. Find out how late payments, debt and credit history can impact your score.

What Affects Your Credit Score

This article contains general information and is not intended to provide information that is specific to American Express products and services. Similar products and services offered by different companies will have different features and you should always read about product details before acquiring any financial product.

At-A-Glance

Ultimately, you have control over the elements that affect your credit score.

What usually affects your credit score most are payment history and credit utilization – how much you use of your available credit.

Credit score simulators now allow you to forecast the potential impact of your actions before you take them.


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. 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. After all, your credit score is nothing more than a report card on how you manage your financial obligations. 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. 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.

What Affects Your Credit Score Most

Based on FICO® Score and VantageScore guidance, these are the actions likely to affect your credit score, listed from most to least impact:

 

  • Payment habits. On time or late – and if late, how late and how often?
  • Credit utilization rate/Amounts owed. 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 how each of these can affect your credit score.

How Payment Habits Affect Your Credit Score

Experts agree that paying your bills on time has the greatest effect on your credit score. FICO says payment history accounts for 35% of your FICO score.1 VantageScore, which does not disclose percentages, describes payment history as “moderately influential” in its scoring system,2 suggesting that its scoring model weights payment history less than FICO’s. To learn more about the differences in scoring, read “What Is a Credit Score?

 

Paying anything less than the required minimum payment on time will work against you.3 Late payments could damage your credit score. It’s important to ensure that you make your payments on time, every time. This will help you to avoid late fees as well. For more on how lenders interpret the scoring ranges, read “Credit Score Ranges: What is an Excellent, Good, or Poor Credit Score?

 

More serious payment issues – such as charge-offs, collections, foreclosures, tax liens, or bankruptcy – can also damage your credit score.4 These may remain visible on your credit report for as long as a decade. A big factor in their impact is that items that don’t typically show up on credit reports may do so when they are assigned to a third-party debt collector. Those items may include everything from unpaid parking tickets or child support payments to utility and cell phone bills.5

How Amounts Owed Affects Your Score

The next greatest effect on your FICO credit score is amounts owed. FICO says it counts for 30% of your FICO® Score. VantageScore calls it “extremely influential,” and gives it the greatest weight of all factors in its scoring model. This metric takes into account how much of your available credit you’re using. Experts say that when your credit utilization ratio exceeds 30% it hurts your score.6

How Credit History Affects Your Score

FICO says that credit history counts for 15% of your FICO® Score, and VantageScore describes it as “less influential.” Two things influence this portion of your score: The age of your oldest account and the average age of your combined accounts.7 Lenders value history, so experts caution that opening new accounts can work against you because it lowers the average age of your accounts.8

 

Experts also caution against looking at these elements in isolation. 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.9

How Debt Mix Affects Your Score

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.” Experts say that having a portfolio that includes only credit cards or only installment loans (such as an auto loan or mortgage) has a negative impact.10

How Credit Inquiries Affect Your Score

Each time a lender “pulls” your credit report for the purpose of making a lending decision, it’s known as a hard inquiry. Pulling a report to review it yourself, or if a lender pulls it to pre-approve you for an offer, is considered a soft inquiry. Each hard inquiry results in a ding on your credit and stays on your report for as long as two years. So, given the way it might reduce your credit score, experts advise against applying for credit too often in a short period of time.11 There is a notable exception to this rule. Experts note that scoring models allow for the reality that consumers want to shop for the best option when seeking a major loan. Therefore, multiple inquiries for auto loans, student loans or mortgages made within a certain period of time, depending on the loan and scoring model, may count as a single inquiry.12


The Takeaway

Although many factors contribute to your credit score, all of them ultimately are within your control. By focusing on the areas that most affect your score and avoiding actions that could hurt your score, you can set yourself up to earn a high credit rating that qualifies for better lending options.


Allan Halcrow

Allan Halcrow is a freelance writer concentrating in business, human resources, and diversity and inclusion. He is also the author of four books on management.

 

All Credit Intel content is written by freelance authors and commissioned and paid for by American Express. 

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