Five things that affect your credit

Date: April 12, 2013 - 12:36pm
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5 things that affect your credit

It’s not enough to simply know your credit score. You also need to be aware of the factors that are used to generate it.

Knowing your credit score is an important part of managing and maintaining your financial health, but knowing the score alone isn't enough. It's also important to understand how your credit score is calculated and the key factors that are used in the calculation. Without understanding the core foundation of how credit scores read and interpret your credit report data, you have no way of knowing whether or not your financial habits are helping -- or hurting -- your credit score.

Following are five factors that affect your credit score:

No. 1: Payment history

Your payment history accounts for 35% of your credit score -- more than any other single factor. If you pay your bills on time and never miss a payment, you are rewarded and will do well in this category. If you have a history of missing payments or paying late, you will not.

Negative Traits: Late payments, missing payments, charge-offs, collections, judgments, liens, foreclosures, bankruptcy. If you have missed a payment, or have been late in the past, the best advice is to get current and stay current. The longer you pay on time, and the older the late payments get, the less impact they will have.

No. 2: Debt

Are you carrying a lot of debt? How much do you debt do you owe? Your debt accounts for 30% of your credit score -- almost as much as your payment history. Some debt is good, but too much debt can hurt you -- especially credit card debt.

Negative Traits: High credit card balances, maxed out credit cards, too many accounts with balances -- all of these

No. 3: Length of credit history

How long have you had credit? This factor accounts for 15% of your credit score and looks at your track record of having credit accounts and managing them well over time. The longer you've had credit, the better.

Negative Traits: Very new or recently opened accounts, or little to no history of credit. Unfortunately, the only thing that can build your credit score in this category is time. If you have recently opened an account you'll need to give it time to age before you'll see a positive effect from the account's history in your credit score.

No. 4: New credit

How often you apply for credit accounts for 10% of your credit score. Every time you apply for credit an inquiry will post to your credit report showing that you're actively searching for credit. Excessively shopping for credit and too many inquiries in a short period of time can hurt your score.

Negative Traits: Applying and opening too many accounts in a short period of time. By law, inquiries remain on your credit report for 24 months -- but only inquiries in the last 12 months will be counted in your credit score.

No. 5: Credit mix

The types of credit you have accounts for the remaining 10% of your credit score. This includes credit cards, auto loans, mortgage loans -- and having a healthy mix will insure you score well in this category. Having too many, or only one type of account can actually hurt you in this category. When it comes to credit scores, diversity is key and credit scoring models like to see that you can maintain and manage a number of different types of credit accounts.

Negative Traits: Having only one type of credit account (all revolving/credit cards, for example), having a finance company account or not having a mortgage loan account can all negatively affect your credit score in this category.

Now that you know the core factors that affect your credit score you should be able to use what you've learned to maximize your own credit score. You can use's Credit Report Card to get your score and monitor your credit-building progress -- for free. After all, having an excellent credit score can make all the difference in the world