5 Factors Are What Actually Matters When It Comes to Your Credit
5 Factors Are What Actually Matters When It Comes to Your Credit
by Robin Hartill, CFP® Senior Editor Updated December 20, 2020
Five factors determine your credit score: pay history for loans and lines of credit; credit utilization; credit history length; credit mix; new credit and hard inquiries. Tina Russell/The Penny Hoarder
It’s impossible to overstate the impact your credit score has on your life. It determines everything from whether you can buy a home or rent an apartment to your credit card interest rates and how much you’ll pay for insurance.
Your credit score is basically just a three-digit number that measures how likely you are to repay your debt. Credit scores range from 300 to 850 and are based on information the three major credit bureaus — Equifax, Experian and TransUnion — have on file for you.
For simplicity’s sake, we’re going to talk about your credit score in the singular, but you actually have three credit scores — one from each of the credit bureaus.
A high score tells lenders that you’ve managed your debt well in the past, while a low credit score indicates that you have a poor history (or not much history) of managing credit.
If you want to build good credit, you need to understand the five credit factors that are used to calculate your score.
The 5 Credit Factors That Matter (and 5 Things That Don’t)
FICO, the data analytics company that calculates most credit scores, has always been hush-hush about the exact formula it uses. But it does tell us that the following five credit factors determine your score:
Payment history for loans and lines of credit: 35%
Credit utilization (i.e., how much of your total available credit you’re using): 30%
Length of credit history: 15%
Credit mix: 10%
New credit and hard inquiries: 10%
VantageScore, a newer credit scoring system, considers similar factors in calculating your score but weights them differently.
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