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What Factors Have the Greatest Impact on Your Credit Score?

April 28, 2023

Fun fact: You probably have dozens of credit scores out there, and each one might be a different number.

You’re probably familiar with a credit score, why it’s essential, and what it’s used for, but do you know how it’s calculated or why your score may differ depending on the credit bureau?

Let’s tackle the last question first. The most quoted credit scores are from the three major credit reporting bureaus—Equifax, Experian, and TransUnion. Each company uses a different scoring methodology, leading to different results. In addition, different credit bureaus hold different information about you. For example, your car loan might report to TransUnion but not to Experian, while your credit card might report to Equifax but not to TransUnion. There might be a mistake in one credit report but not in another. All these differences influence your credit scores, and because lenders decide which bureau they obtain reports/scores from, it’s important to check all three credit bureau reports for accuracy each year.

While each credit bureau arrives at your credit score using the same criteria, they give different weights to each. The criteria are as follows:1

  • Payment history
  • Amount of debt/credit utilization ratio
  • Length of credit history/credit age
  • Credit mix
  • Credit inquiries

Let’s look at each of them.

One of the most critical drivers of your credit score is your payment history. This includes any payments you have made on credit cards, loans, and other debts. Late payments, missed payments, and loan defaults can negatively impact your credit score. On the other hand, consistently making on-time payments may improve it. It’s important to note that even one late payment can damage your credit score and remember that medical expenses are treated the same as any other debt in the eyes of credit bureaus.

Another key driver of your credit score is the amount of debt you have compared to the amount of credit available to you, aka your “credit-utilization ratio.” Generally, a credit-utilization ratio above 30 percent is a red flag for credit bureaus and can bring down your credit score. Why? It can signal to lenders that you may be struggling to manage your debt.

The length of your credit history, or “credit age,” also impacts your credit score. The longer you have credit, the more information lenders have to assess your creditworthiness. If you’re building credit, your credit score may take some time to improve; however, as you establish a longer credit history and demonstrate responsible credit management, your credit score will likely improve over time. Opening new accounts can also impact the length of your credit history.

Your credit mix is another factor that might impact your credit score. There are two basic types of credit: installment credit, where borrowers receive a lump sum and scheduled payments are made until the loan is paid in full (think mortgage or auto loan) and revolving credit, where a person borrows money, repays it, and borrows again as needed (e.g., credit card or line of credit). Having a mix of different types of credit, such as a mortgage and a credit card, can demonstrate to lenders that you are able to manage different types of debt responsibly. In addition, lenders may view having a mortgage or car loan more favorably than having only credit card debt.

Applying for credit can drop your credit score, as excessive inquiries about obtaining credit—called “hard inquiries”—can be seen as a willingness or need to take on too much credit. “Soft inquiries,” such as checking your score, do not affect your credit score.

Credit scores range between 300 and 850, with 580 to 669 considered fair, 670 to 739 considered good, 740 to 799 considered very good, and 800 and above considered excellent. And the higher your credit score, the lower the interest rate you may qualify for when borrowing money.2

So, what can you do to improve your credit score? Here are a few tips:3

  • Pay all of your bills on time. This is perhaps the most important thing you can do, as late payments have a negative impact on your credit score.
  • Keep your credit utilization ratio low. This means using only a small portion of the credit available to you.
  • Don't apply for too much credit at once. Every time you apply for credit, an inquiry is generated into your credit report. Too many inquiries can signal to lenders that you are taking on too much debt, which can have a negative impact on your credit score. Furthermore, opening new credit accounts reduces your credit age, which negatively affects your credit score.

Remember to monitor your credit report. It’s essential to stay aware of your credit history and any errors affecting your credit score. You can request a copy of your credit report from each of the three major credit bureaus (Experian, Equifax, and TransUnion) once per year for free at Note that your free credit report does not include your credit score. However, you can obtain it from other sources, including credit card companies where you have an account. You can also use a credit monitoring service to stay informed about any changes to your credit report.4

Credit is an important financial tool when used responsibly. As it takes time to build or improve your credit score, it’s essential to be consistent and persistent in your efforts. Your credit score will likely improve as you establish a longer credit history and demonstrate responsible credit management.

Credit scores are just one factor that affects your overall financial strategy. We’re happy to meet with you or anyone you know if you have any questions on this topic. Our office may have some resources that can address initial questions about debt management tools.

1, August 31, 2021

2, April 29, 2021

3, 2023

4, 2023