Common Things That Improve or Lower Credit Scores

Factors that determine your credit score include your payment history and credit mix

Common things that improve or lower credit scores include payment history, credit utilization (the amount of credit you use), credit mix, and your length of credit history. Another thing that can improve or lower your credit score is whether you've opened new credit recently.

Key Takeaways

  • Five major things can raise or lower credit scores: your payment history, the amounts you owe, credit mix, new credit, and length of credit history.
  • Not paying your bills on time or using most of your available credit are things that can lower your credit score.
  • Keeping your debt low and making all your minimum payments on time helps raise credit scores.
  • Information can remain on your credit report for seven to 10 years.
Factors that Lower Credit Scores

Investopedia / Julie Bang

How Is a FICO Score Calculated?

A credit score is a three-digit number that helps financial institutions evaluate your credit history and estimate the risk of extending credit or lending money to you. The most common credit score is the FICO score. Credit scores are based on information collected by the three major credit bureaus: Equifax, Experian, and TransUnion.

Your credit score is often a deciding factor in whether you qualify for a loan at what interest rate. Learn how your FICO score is calculated, what information is not considered, and some common things that can raise or lower your credit score. That way, you can work toward improving and maintaining your credit score.

Your FICO score is based these five common things that can raise or lower credit scores:

  • 35%: payment history
  • 30%: amounts owed
  • 15%: length of credit history
  • 10%: new credit and recently opened accounts
  • 10%: types of credit in use

What's Things Are Not Included in a FICO Score?

While FICO considers a variety of factors in determining your score but not all financial information is included. This information includes:

  • Race, color, religion, national origin, gender, or marital status
  • Age
  • Salary, occupation, title, employer, date employed, or employment history
  • Place of residence
  • Interest rates on your current credit cards or other accounts
  • Child support or alimony
  • Certain types of inquiries, including consumer-initiated inquiries, promotional inquiries from lenders without your knowledge, and employment inquires
  • Whether you have obtained credit counseling

FICO is the most widely used credit score, but it is not the only one. Other scoring models such as VantageScore financial factors into account in different ways.

What Things Can Lower Credit Scores?

If you don't manage your credit responsibly, your credit score will suffer. Lenders don't like to see, for example, a history of late payments or high credit use. They will consider these risk factors that indicate a borrower may not repay a loan. So they're less likely to approve a loan and less likely to provide the best interest rates to those borrowers.

Let's look in more detail at things that can lower credit scores.

Late or missed payments

Your payment history plays the largest role in determining your credit score. It accounts for 35% of your FICO score. You payment history includes information on specific accounts (credit cards, retail accounts, installment loans, mortgage, etc.). Certain adverse public records (such as liens, foreclosures, and bankruptcies), the number of past due items on file, and how long those accounts are past due.

Too much credit in use

Another 30% of the FICO score is based on the amount you owe as a percentage of the credit you have available to you, such as the limits on your credit cards.

Having too high a percentage (such as more than 30%) may mean that you are overextended and could have trouble repaying your debts in the future. This is often referred to as your credit utilization ratio.

Thin credit history, or none at all

The length of your credit history plays a role in the calculation of your FICO credit score. A younger person will typically have a lower credit score than an older one, even when all other factors are the same. Lenders like to see longer credit histories because that indicates you can reliably repay your loans.

When your credit history is shorter, your score will be lower. Another 15% of your FICO score is based on the length of your credit history, including the amount of time since the various accounts were opened and used.

Too many requests for new lines of credit

Your FICO score does not take into consideration any consumer-initiated or promotional inquires, which are called soft inquiries. You can check your own credit score without risk of damaging it and companies that make inquiries before sending you promotional notices (such as pre-approved credit card solicitations) will not affect your score, either.

The 10% of your FICO score that is based on new credit includes the number of recently opened accounts (and the percentage of new accounts compared with the total number of accounts), the number of recent credit inquiries (other than consumer and promotional inquiries), and how long it's been since new accounts were opened or credit inquiries were made.

Too few types of credit

The remaining 10% of your FICO score is based on the types of credit you use, such as credit cards, mortgages, auto loans, and personal loans. Having only one type of credit—just credit cards, for example—can have a negative impact on your score.

Having a variety of credit types improves your score because it marks you as an experienced borrower.

What Things Can Raise a Credit Score?

Improving a credit score is a gradual process. There are no quick fixes—and beware of any person or company that tries to sell you one. FICO's advice for rebuilding credit is to "manage it responsibly over time." Here are some of the steps you can take:

  • Check your credit report to identify problem areas and report errors
  • Use a credit monitoring service
  • Set up automatic payments or payment reminders so that you pay bills on time
  • Reduce your overall level of debt
  • Pay off debt rather than move it around, such as from one credit card to another
  • Keep your credit card and revolving credit balances low
  • Apply for and open new credit accounts only if necessary
  • Hire a credit repair company to negotiate with your creditors

What Affects Your Credit Score the Most?

Your payment history will have the greatest impact on your FICO credit score. This factor accounts for 35% of your credit score. Making payments on time and reporting erroneous late payments on your credit report can help boost your credit score.

What Can Ruin Your Credit Score?

Several factors can ruin your credit score, including if you make several late payments or open to many credit card accounts at once. You can ruin your credit score if you file for bankruptcy or have a debt settlement. Most negative information will remain on your credit report for seven to 10 years.

Does Paying Utilities Build Credit?

Paying your utilities bills on time typically has no affect on your credit score because credit companies do not report your payment information to credit bureaus. But if you are delinquent in paying your utilities bills, the utility company will likely report this information and your credit score will suffer.

The Bottom Line

Common things that improve or lower credit scores include factors related to your payment history, amount of debt that you've used, and your credit mix. Your credit score also factors in whether you've open new credit recently and how long you've had credit. Understanding what plays a role in determining your credit score can help you develop a strategy to improve it.

Article Sources
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  1. My FICO. "What's in My FICO® Scores?"

  2. myFICO. "What Are the Different Categories of Late Payments?"

  3. myFICO. "What Should My Credit Utilization Rate Be?"

  4. myFICO. "What Is the Length of Your Credit History?"

  5. myFICO. "What Does Credit Mix Mean?"

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The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace.