Get smart about credit: Know what factors affect your credit score

The way you use credit can affect your ability to borrow money in the future. Using credit responsibly is key to securing a positive credit rating. Get Smart About Credit Day is Thursday, Oct. 19, which makes it an ideal time to learn what factors help determine your credit score.

Top 5 factors that affect credit scores

According FICO, there are five main factors that can play into determining a final credit score. Some have a larger impact than others, but each area is examined to determine a person’s ability to pay back a loan. Following are the five factors FICO uses to calculate a credit score and the percentage each factor plays in determining the final score.

  • Payment history (35 percent): This is the most important factor in determining your credit score. Showing consistency in paying bills on time is vital to securing a higher credit score as it shows your reliability in paying off a loan or other debt.
  • Credit utilization (30 percent): How you handle debt plays the second largest role in determining a credit score. Maxing out credit cards and carrying large balances can have a negative effect. FICO recommends using only about 7 percent of available credit.
  • Length of credit history (15 percent): Building a positive credit history takes time. The longer you can show a timely credit history, the more likely it is to positively impact a credit score.
  • Too many accounts and inquiries (10 percent): Generally it’s not a good idea to open a large number of accounts – particularly if many of them were opened over a short period of time. On top of that, when a business accesses a consumer’s credit report, it creates an inquiry. Inquires can come from lenders, retailers or even landlords. Having too many accounts and inquiries can have a negative effect on your credit score.
  • Credit mix (10 percent): A variety of different types of accounts can have a positive impact on a credit score. If 90 percent of the accounts on your credit report are credit cards, for example, it will not be reflected positively in a final credit score. When you are able to consistently make payments on a variety of accounts – car loans, credit cards, student loans, home mortgages, etc. – it shows you are less of a credit risk.