What 5 Factors Determine Your Credit Score?

If you have a bad credit score, the way to fix it isn’t a mystery! Just take a look at these five factors and figure out where you need to improve.

Your credit score was important in 2018. And guess what? It’s going to continue being important in 2019. Whether you’re shopping for an online loan, applying for a credit card, looking to rent an apartment, or even applying for car insurance, your credit score is going to be vital.

With so much riding on your creditworthiness, a lousy score is something you’re going to want to fix pronto. But it’s not always obvious what the best way to fix your credit score is.

That’s because your credit score isn’t based off just one thing. Your credit score is based on the information in your credit reports, which are compiled by the three major credit rating agencies. That information is broken down into five major categories that determine whether your score is great, good, or bad.

Once you know a little bit more about these five factors are and how you can better manage them, you’ll be on your way to becoming the 2019 Credit Score Champion!

Payment history.

This is the big one. It’s also the one you were probably already aware of. If you’re not paying your bills, it’s going to reflect poorly on your credit score. At 35 percent, it’s worth over a third of your total score, more than any other single factor.

“When trying to improve your score, the number one factor is ensuring that your payments are paid on time and as agreed,” explained Nathalie Noisette, owner of Credit Conversion (@credconversion). “Since payment history accounts for 297.5 points of your score, I’d pretty much do whatever it takes to make sure that those payments were in on time.

“With that being said,’ she added, “automating payments ensures that your bills are getting paid and you don’t run the risk of forgetting to pay. The number one reasons most of my clients don’t pay is not because they don’t have the money, its because they don’t have the memory.

“Automating payments is a good tool. As a precautionary measure, I would also advise setting up alerts. When your bill is due, daily balance updates and even changes to your score are all good alerts to be in the know of.”

Amounts owed.

The amount of debt you actually owe is the next most important factor, worth a little less than a third of your total score.

“The second most important factor used in determining a credit score is how much of your available lines of credit you actually use,” outlined RJ Mansfield (@DebtAssassin1), consumer’s rights advocate and author of Debt Assassin: A Black Ops Guide to Cleaning Up Your Credit.

“This determines thirty percent of your score. You can pay your bills on time forever and still have a poor credit score because you carry too much debt.”

Another sub-factor within your amounts owed is your credit utilization ratio. This measures how much of your available credit you’re currently using. In order to maximize your score, try to keep your open revolving balances under 30 percent of your total credit limit.

Length of credit history.

If owing too much in debt is a drag on your credit score, surely the smartest move would be to never take on any debt at all, right? Wrong!

15 percent of your credit score is determined by the length of your credit history. The longer, the better, which means not having any credit history at all is not a good thing for your score.

But this also doesn’t mean that you need decades of credit use to have a good score.

“A short credit history can be great as long as you’ve made your payments on time,” advised financial coach and author Karen Ford.

It does mean, however, that closing lines of credit isn’t always the best choice.

“It usually does not make sense to close out credit cards because you want to establish a long credit history,” warned Alissa Todd, financial advisor with The Wealth Consulting Group (@WealthCG).

Once you’ve paid an old credit card off, it’s probably a good idea to keep the card open. This is especially true for older cards that you’ve had open for a long time.

Just make sure that you don’t end up using it! Giving in to that temptation and racking up additional debt could end up undoing all your hard work.

Credit mix.

The last two factors are worth 10 percent each. One of those factors is “credit mix.” So what does that mean?

“Credit mix isn’t nearly as weighted as the other factors,” explained Jacob Dayan, CEO of Community Tax, LLC (@communitytaxllc). “However, if you want to further improve your credit score to earn the lowest interest rates or top credit cards, you’ll want to mix it up with different loans, like auto, home mortgage loans, different types of credit cards, etc.”

New credit inquiries.

OK, now what’s this one?

Well, every time you apply for a personal loan, auto loan, mortgage, or credit card from a traditional lender, the lender will run a credit check on your application. This results in “hard inquiry” being listed on your report.

Hard inquiries usually ding your score, but the effect won’t last that long. Still, why would you risk any unnecessary harm to your score? If you don’t need credit, don’t apply for it.

“New credit is a little complicated and requires some further research on your own,” Dayan suggested. “But, the best way to improve it is to only open lines of credit as needed. If you open too many lines of credit within a short time, it can signal that you’re in financial distress and need to borrow money.”

Most short-term bad credit loans—like payday loans, title loans, cash advances—don’t result in hard credit inquiries. This is why they’re also known as “no credit check loans.” But don’t be fooled: there are plenty of other reasons to avoid these products.

Some bad credit installment loans, meanwhile, will result in a “soft” inquiry on your credit, but that won’t affect your score. You can learn more about the difference between hard and soft credit inquiries in this post.

But wait, there’s more!

It’s not just your actions that can have an effect on your credit score.

“If you cosigned a loan or are married and hold a joint credit account, it is important to realize that your credit behavior does affect your joint account holder and vice versa,” warned Todd.

Now that you know the five credit score factors and what you can do to improve them, you’re all set to tackle your credit-related resolutions in the new year. May your credit score reach 2019!

(But actually the highest score is 850 so you’ll probably be shooting for something closer to that.)

To learn more about credit scores, check out these related posts and articles from OppLoans:

Do you have a question about credit scores you’d like us to answer? Let us know! You can find us on Facebook and Twitter.

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Jacob Dayan is the CEO and Co-Founder of Community Tax, LLC (@communitytaxllc) and Finance Pal, LLC. He began his career in Wall Street New York at Bear Stearns working in the Financial Analytics and Structured Transactions group. He continued to work in Wall Street until early 2009. When he then left New York and returned to Chicago to be with his family and pursue his lifelong dream of self-employment. There he co-founded Community Tax, LLC followed by Finance Pal in late 2018.
Karen Ford is a Master Financial Coach, Public Speaker, Entrepreneur, and Best- Selling Author. Her #1 Amazon Best Selling Book “Money Matters” is a discovery for many.  In “Money Matters” she provides keys to demolishing debt, shares how to budget correctly, and gives principles in wealth building.
RJ Mansfield (@DebtAssassin1) is a consumer’s rights advocate and author of Debt Assassin: A Black Ops Guide to Cleaning Up Your Credit.
Nathalie Noisette is the Founder of Credit Conversion, a credit counseling, and repair company located in Avon, MA. Credit Conversion uses principles of behavioral change to not only allow clients to improve their score but understand the habits that lend to poor credit. “Through our repair and training, it is our vision to see all of our clients repair and maintain near perfect credit scores.”
Alissa Todd is a Wealth Advisor at The Wealth Consulting Group where her team helps clients simplify their financial life and use money to live a life they love. She learns what is most important to you and then creates an implementable action plan to help you pursue financial independence so that you can live your life by design, not default. Alissa grew up in Europe (The Netherlands & Ireland) prior to moving to California 10 years ago. Growing up in a bilingual household of English and Japanese, Alissa stays involved in the community by being a board member of the Japanese American Citizens League San Diego chapter. Outside of work, you can catch her on one of many hikes in San Diego, practicing yoga.

The information contained herein is provided for free and is to be used for educational and informational purposes only. We are not a credit repair organization as defined under federal or state law and we do not provide "credit repair" services or advice or assistance regarding "rebuilding" or "improving" your credit. Articles provided in connection with this blog are general in nature, provided for informational purposes only and are not a substitute for individualized professional advice. We make no representation that we will improve or attempt to improve your credit record, history, or rating through the use of the resources provided through the OppLoans blog.