What Are the Most Important Factors in Your Credit Score?

A man writing on a document and putting coins into a piggy bank

As your brutally honest financial report card, your credit score has incredible power over your ability to borrow money. Whether you’re searching for a new home, eager to buy a car, or hoping to secure a loan, your credit score will make or break your chances.

This is great news for people with strong, healthy credit scores. But if your Credit Karma rating keeps reminding you of your “Poor” credit score status, you probably won’t qualify for funding.

But do you understand why that is, why you’re getting that financial grade? Five specific factors push your credit score up or down. By understanding those factors and taking control of each one, you can boost your credit score and enjoy the buying and borrowing power that comes with it.

Payment History

Your payment history is the single most powerful statistic used to rate your credit score, counting for some 35% of it. Lenders want to know they can count on your paying bills in a timely fashion, even if you don’t pay in full. If your payment history is littered with 30- and 60-day late records, lenders won’t feel too confident giving you a loan for $20,000 or a shiny new car.

The following factors may send your payment history rating up or down:

  • Do you pay your bills on time every month?
  • Were you 30, 60, or 90+ days late if you paid late? The later you pay, the worse it hits your score.
  • How many accounts do you have in collections? Each collection is a red flag that suggests you don’t pay back your debts,
  • Do you have bankruptcies, foreclosures, wage garnishments, liens, or public judgments against you? Many lenders automatically deny applications when these public marks exist on your credit report.
  • How long has it been since your last late payment? Time heals all wounds, and late payments affect your score less after a few years. They can even be removed after seven years.

Credit Utilization Ratio

Your credit utilization ratio measures how much debt you have compared to your available credit how close you are to your credit card limits, in other words. It accounts for 30 percent of your credit score, which is slightly less critical than payment history.

It is best to owe a small amount, even if your credit limit allows you to borrow thousands of dollars. For example, owing $50 on a credit card with a $1,000 limit looks great; owing $7,500 on a credit card with an $8,000 limit looks irresponsible.

The percentage you owe is essential too. A $500 balance on a credit card with a $1,000 limit dings you more than a $500 balance on a card with a $5,000 limit. The former equals a credit utilization ratio of 50 percent you’ve used up half of the credit on that card but the latter is only 10 percent.

Length of Credit History

The length of your credit history counts for 15 percent, which can be frustrating for young adults just starting to build their credit reports. This component looks at the length of time you’ve had obligations, your oldest account, and the average of all accounts combined.

Your ultimate goal is to show a long credit history of positive payments, but a short history can get the job done if you don’t owe too much and pay on time.

Here’s an easy trick to boost this part of your credit score rating: Bring your credit card balance down to zero, then leave it open. The account’s age and low balance will boost your score over time.

New Credit Accounts

The number of new accounts you open and apply for counts as 10 percent of your score. Yes, that’s right: You are graded not just on the accounts you open but the ones you try to open.

Lenders perform a hard inquiry on your credit score every time you fill out a loan application. One or two hard credit pulls won’t cause too much damage, but multiple hard credit pulls in a short time raise red flags. Lenders may assume you’re experiencing cash flow problems or planning to take on a dangerous amount of debt.

Slow and steady wins the race when it comes to new credit.

Credit Mix

Last but not least, accounting for 10 percent of your credit score is the mix of credit you have. Mortgages, store accounts, credit cards, installment loans, and other types of debts are all considered in this formula. Lenders like to see a nice mix that demonstrates you’re a balanced borrower. Though it’s not the most potent scoring component, keep it in mind before you’re tempted to open six new credit cards in your name.

Considering your credit score’s influence over your ability to borrow money and achieve major milestones like buying a house or car, make sure you monitor your credit score and take strategic steps to boost your score. You’ll thank yourself in the future!

Don’t wait to get out of debt! Read this: A Complete, Step-By-Step Guide to Get Out of Debt.