What Affects Your Credit Score?
8 Min Read | Last updated: February 16, 2024
This article contains general information and is not intended to provide information that is specific to American Express products and services. Similar products and services offered by different companies will have different features and you should always read about product details before acquiring any financial product.
There are many factors that can influence your credit score. Find out how late payments, debt, and credit history can impact your score.
At-A-Glance
- Ultimately, you have control over the elements that affect your credit score.
- What usually affects your credit score most are payment history and credit utilization – how much you use of your available credit.
- Credit score simulators now allow you to forecast the potential impact of your actions before you take them.
Which of the following most influences your credit score: banks and credit card companies, credit reporting bureaus, or you? Ultimately, it’s your own behavior.1 Each time you take out a loan or use your credit card and each time you make a payment (or don’t), that action is likely to influence your score.1 After all, your credit score is nothing more than a report card on how you manage your financial obligations.1 To learn more about credit scores, read “What Is a Credit Score?"
Naturally, therefore, it can help you to know how much different actions could affect your credit score. Fortunately, it’s not as mysterious as it may seem. First, the leading credit score providers – Fair Isaac Corporation (FICO) and VantageScore Solutions – both share general guidelines about how their scores are calculated.1,2 And second, technology now lets you see those guidelines in action. You can access several online credit score simulators that estimate the impact of specific actions. One is the FICO® Score Simulator, which you can access for free by enrolling in MyCredit Guide from American Express®. (FICO is a registered trademark of Fair Isaac Corporation in the U.S. and other countries.)
What Affects Your Credit Score Most
Based on FICO and VantageScore guidance, plus my own experience with the credit score simulator, these are the actions likely to affect your credit score, listed from most to least impactful:2,3
- Payment habits. Are your payments on time or late – and if late, how late and how often?
- Credit utilization rate. How much are you using of the total credit available to you?
- Credit history. Have you been responsible with debt for a long time?
- Debt mix. Are you experienced with a variety of different types of credit and debt?
- Credit inquiries. How often do you open new credit card accounts or apply for loans?
Let’s dive deeper into what the credit score simulator showed about how each of these affected my credit score.
How Payment Habits Affect Your Credit Score
Experts agree that paying your bills on time has the greatest effect on your credit score.4 FICO says payment history accounts for 35% of your FICO score.2 VantageScore, which does not disclose percentages, describes payment history as “extremely influential” in its scoring system.3
If you do have to pay late, it likely won’t affect your credit score until it’s more than 30 days past the due date.5 Experts say that one late payment can have a negative impact, but it may diminish with time and good payment behavior on all of your accounts.5 My experience with the MyCredit Guide credit score simulator demonstrated this. One late payment had little effect, but making late payments to all my creditors dropped my score a whopping 19%.
Experts also caution that the later your payment gets, the greater the negative impact.6 Payments that are 60 or 90 days late will likely hurt your score more than those that are 30 days late.6 Again, the MyCredit Guide simulator proved the point. Letting all my accounts fall 90 days behind cost me almost a quarter of my score and dropped me two ranges. For more on how lenders interpret the scoring ranges, read “Credit Score Ranges: What is an Excellent, Good, or Poor Credit Score?”
Experts also say that serious payment issues – such as charge-offs, collections, foreclosures, tax liens, or bankruptcy – can damage your credit score.7 These may remain visible on your credit report for as long as a decade.8 In the MyCredit Guide simulator, a single account going to collections decreased my score by 6%.
How Credit Utilization Rate Affects Your Score
The next greatest effect on your FICO credit score is the amount of credit you use as a portion of how much is available to you, known as your credit utilization rate.9 FICO says it counts for 30% of your FICO® Score.9 VantageScore calls it “highly influential,” and gives it the second greatest weight of all factors in its scoring model.3 Experts say that when your utilization exceeds 30% it hurts your score.3
How Credit History Affects Your Score
FICO says that credit history counts for 15% of your FICO score,10 and VantageScore describes it as “highly influential.”3 Two things influence this portion of your score: the age of your oldest account and the average age of your combined accounts.3,10 Lenders value history, so experts caution that opening new accounts can work against you because it lowers the average age of your accounts.11
Experts also caution against looking at these elements in isolation.2 For example, opening a new credit card account may have an initial negative impact on the credit history portion of your score. But experts say this may be offset by an improvement in the utilization rate component of your score, because the total amount of credit available to you increases when you open the new account.11
How Debt Mix Affects Your Score
Lenders want to see that you can effectively manage different kinds of debt, which is why FICO says your credit mix accounts for 10% of your score, and VantageScore labels it “highly influential.”3,13 Experts say that having a portfolio that includes only credit cards or only installment loans (such as an auto loan or mortgage) has a small but negative impact.13
How Credit Inquiries Affect Your Score
Each time a lender “pulls” your credit report for the purpose of making a lending decision, it’s known as a hard inquiry.14 Pulling a report to review it yourself, or if a lender pulls it to pre-approve you for an offer, is considered a soft inquiry.14 Each hard inquiry results in a ding on your credit and stays on your report for as long as two years.14 So, given the way it might reduce your credit score, experts advise against applying for credit too often in a short period of time.14 But there is a notable exception to this rule. Experts note that scoring models allow for the reality that consumers want to shop for the best option when seeking a major loan.14 Therefore, multiple inquiries for auto loans, student loans, or mortgages made within a 14- to 45-day window, depending on the loan and scoring model, may count as a single inquiry.14
The Takeaway
Although many factors contribute to your credit score, all of them ultimately are within your control. By focusing on the areas that most affect your score and avoiding actions that could hurt your score, you can set yourself up to earn a high credit rating that qualifies you for better lending options.
1 “What is a credit score?,” Consumer Financial Protection Bureau
2 “What's in my FICO® Scores?,” MyFICO
3 “How Credit Scores Work,” VantageScore
4 “Understand the Ins and Outs of Credit,” FINRED
5 “How Long Do Late Payments Stay on a Credit Report?,” Experian
6 “Late Credit Card Payment? Here’s What to Do,” Experian
7 “What Does “Derogatory” Mean on a Credit Report?,” Experian
8 “How Long Does It Take for Information to Come Off Your Credit Reports?,” Experian
9 “What is Amounts Owed?,” MyFICO
10 “What is the Length of Your Credit History?,” MyFICO
11 “What is New Credit?,” MyFICO
12 “What Does Credit Mix Mean?,” MyFICO
13 “How the Right Mix of Credit Can Boost Your Credit Score,” Experian
14 “What Is a Hard Inquiry and How Does It Affect Credit?,” Experian
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