Credit Score Determining Factors

Definition of the Number

Excellent – 720+

Consumers with a credit score of 720 or higher are amongst the least risky borrowers.  They handle their financial matters responsibly and have a very high likelihood of repaying their debt.  Being able to obtain credit is not the only benefit of having a high credit score.  The higher your credit score, the more perks you get, like being offered a high loan amount and a lower interest rate, and it will even save you money when purchasing auto insurance.

The credit score looks at five categories to determine your creditworthiness.

FICO Score Influencers

Payment History Equals 35% of Credit Score

Paying your bills on time (meaning no more than 30 days late) will positively affect your credit score.  Paying your bills more than 30 days late will create a negative mark on your credit and thus lowers your credit score.  Not paying your bill at all will result in your account being sent to a collection agency and will drastically negatively affect your credit score.

Outstanding Debt Equals 30% of Credit Score

How much you owe on each of your loans and how many credits cards you have will be reviewed to determine your score. Keeping your utilization ratio, meaning how much of the available credit have you used (e.g., no maxed credit cards) should be less than 30%.  If you exceed the 30% utilization rate, your credit score will be lower, even if you make your monthly payment on time each month.

Example: You have a credit card with $5,000 available credit, but the balance you owe is $4,000.  You have exceeded the recommended 30% ratio; in this case, 30% would be $1,500.00.   Although you have an available credit limit of $5,000, you should not carry a balance higher than $1,500.00.  This usage example shows you have self-control, and you are managing your available credit.

The Age of the Credit Equals 10% of Credit Score

The longer the credit has been available to you, the more this helps your credit score.   If you just obtained a credit card, it may not help your credit score as much.  If you have the same credit card for five years, that shows longevity and will help your credit score.  If you close an account, it actually could hurt your credit score, so keep the longevity factor in mind if you decide to close an account.

The Mixture of Credit Types on Your Credit Report Equals 10% of Credit Score

Having diversity in the types of credit will help your credit score.  If you have a mortgage, car loan, student loan, and a credit card, those are all different types of loans.  Having a variety of credit will help you increase your credit score, as opposed to someone with five credit cards and no other type of credit on their credit report.

New Credit/Credit Inquiries Equals 10% of Credit Score

Opening new credit may temporarily lower your credit score. The number of inquiries you have also affects your credit score.  There are two types of inquiries, hard and soft inquires.  A hard inquiry occurs when you give a lender permission to check your credit.  Fortunately, there is a slight tolerance for similar hard inquiries in a short period of time, usually 30 days.  So, if you are shopping for a vehicle and you have three dealerships access your credit report over a two-week timeframe, it will only count as one inquiry.  A soft inquiry occurs without your permission and is more like a preview of your credit.  The pre-approved credit card applications you receive in the mail are an example of this type of inquiry, and these companies do not have access to your full credit report.  When you check your credit, that is also considered a soft inquiry.  Soft inquiries do not affect your credit score.

VantageScore Influencers

Extremely influential – Total credit usage, balance, and available credit

Highly influential – Credit mix and experience

Moderately influential – Payment history

Less Influential – Age of credit history

Less Influential – New accounts