• Post category:Creducation
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Here’s how the system works. An algorithm based on five factors is what affects a credit score:

  1. Payment History
  2. Credit Utilization
  3. Credit Age
  4. Account Mix
  5. Hard Inquiries
The Five Factors as to What Affects a Credit Score

Payment History – 35%

35% of your credit score and by history they mean the past two years at least.

An old late payment will have LESS of a negative impact on your score. A recent late payment will have a GREATER negative impact on your score.

The same goes for on time payments.

An old on-time payment will have LESS of a positive impact on your score. A recent on-time payment will have a GREATER positive impact on your score.

Getting a late payment is without a doubt the worst thing you can do to your credit score. It instantly turns that positive account into a negative one, and any on-time payments made prior are now basically worthless.

I have seen many cases in which creditors don’t even start to report a consumers payment history until they get a late payment, and they only report that one late payment and not all the on-time payments that came before.

To make matters worse, there is no easy way to remove that late payment from your credit report. In fact, there are only two ways, and this is where I can help.

The first way to remove the late payment is by removing the entire account. You’d need to pay off any debt owed, close the account, and dispute the entire account to have it removed from your credit report.

The second way to remove the late payment is best if you want to keep the account open. You simply dispute the late payment by using a goodwill letter explaining any barring extenuating circumstance that had caused the late payment and maybe they’ll remove it.

The Takeaway: Always Set Up Auto Pay for Your Credit Cards and Loans

Credit Utilization – 30%

There is no medium to understanding credit utilization. You either understand it or you don’t, and the transition is almost instantaneously.

Credit utilization is simply your ratio of debt to your available credit.

Now, 30% of what affects a credit score depends on credit utilization, and to ensure you’re not missing out on any of that 30%, it is imperative that you keep your credit utilization under 30% for each account. However, 0% is perfect if you’re shooting for an 800+ credit score.

This is best accomplished by simply never using your credit card. However, nobody is perfect, so don’t use more than 30% of your available limit to keep a good (not excellent) credit score.

I’ll give you an example. Let’s say an individual has three credit cards.

Capital One Credit Card – Limit $1,500
Discover Bank Credit Card – Limit $5,000
Chase Bank Credit Card – Limit 3,500

Best Practice:

Capital One Credit Card – Never Let Your Balance Exceed $450
Discover Bank Credit Card – Never Let Your Balance Exceed $1,500
Chase Bank Credit Card – Never Let Your Balance Exceed $1,050

You also want to avoid closing accounts as closed accounts can have a minor negative impact on your score for a short period of time immediately following the closing of the account.

Your number of open accounts should always be greater than your number of closed accounts.

Credit Age/Credit History – 15%

You’re probably unaware of the difference between your credit age and your credit history. While the difference is minor it is still fundamental when it comes to what affects a credit score.

Here are the definitions of each and how they differ:

Credit History refers to the amount of time a specific account has been open. Confusingly, though, it’s also used to refer to the FICO score calculation category we’ve been discussing.

Credit Age, on the other hand, refers to an average. The bureau finds the mean length of credit history for all your open accounts. In short, your credit age is used to calculate the 15% of your score that’s tied to your length of credit history.

Let’s say you have three lines of credit: your first credit card, your student loans, and an installment loan you took out to buy a car.

So you’re 22 years old. You got both the student loan and credit card when you were 18 and opened the personal loan this year. You decide you don’t want to use the credit card anymore — so you pay it off and close the account, right?

Well, when it comes to your credit history, not really. By closing the account, you’ve taken away a third of the information the bureaus can use to calculate your credit score.

And since all of your credit lines are so young, you’ve also shortened your overall credit age:

4 years (credit card history) + 4 years (student loan history) + 1 year (car loan) = 9 years, divided by 3 accounts, giving you an average credit age of 3 years.

But when you take away the credit card, it looks like this:

4 years (student loan history) + 1 year (car loan) = 5 years, divided by 2 accounts, giving you an average credit age of 2.5 years.

Account Mix – 10%

This criteria is straight forward and accounts for a small portion of your credit score at just 10%.

Account mix means exactly what you’d think it means — the “mix” or diversity of your open accounts.

You want to have a variety of open accounts at any given time. These include but are not limited to, credit card accounts, installment loans, auto loans, and mortgages.

Hard Inquiries – 10%

A hard inquiry happens when you apply for a loan or credit card, giving the lender permission to review your credit report from one or more of the three major credit bureaus: Experian, TransUnion and Equifax.

Hard inquiries make up 10% of your credit score and each one can account for up to 8 points of your credit score.

You’ll want to be certain you’re ready to take out a loan when you apply, or risk hurting your chances for a better offer later down the road.

Thank you for taking the time to read to the end. I hope this answers the question, “What affects a credit score” to your satisfaction.

If not, please leave a comment with any questions and I will get back to you with the answer. Also, learn how to add positive accounts to your credit reports for free using iOS and Android applications.

This Post Has 9 Comments

  1. LineCowley

    If you do have a late payment that affects your credit score, how long will it be sitting as a black mark against your name? Thank you.

    1. Dalton

      Unless you do something about it, the negative mark will stay on your credit report for 7 years. However, disputing the account properly could get it deleted right away. Contact me privately if you would like a credit consultation 🙂 thanks for commenting!

  2. Ruth

    I found your description of what was important for a good credit score very informative.  It’s really good to know how the credit score actually works, then you can prepare for a good score when applying for a loan. Also your tip for auto repayments to happen on any current or future loans or credit cards makes a lot of sense and I can see why it would give a  better result when applying for future credit.  Thanks for the share.

  3. Moses

    I didn’t know that 30% of what affects a credit score depends on credit utilization. I’ll be sure to pay down my balance before it goes above 30%.

  4. moses456


    I always wanted to know about credit points, but actually I am not a US citizen.
    By the way I liked your article outline, it is clear and easy to read.

    What I understood is I have to keep my credit score below 35%, by not exceeding the limit in the credit cards, and Canceling is not good, but what I didn’t understand how to collect credit points?

    By the way it is not good for creditors not to inform consumers for closing their credit, but what is their benefit by not telling, and delaying their own money to receive? i did not get this actually.

    But other staff about Payment History Credit Age, Account Mix,Hard Inquiries, is perfectly clear.

    Thank you for your article, it made me understand some things that I was looking for)

  5. Michel Maling

    It is so easy to get a bad credit score, especially where late payments come in. So many times we are so busy that unless we have a debit order we tend to forget and end up paying double the next month. This is I think an unfair measure, as they should look at you over a period of time and give you the benefit of the doubt if you are only late now and then.

    I make sure I pay my credit card in full each month as well, as I never want to be in the position where I owe more than I have.

  6. pasindu dimanka

    I’ll make it a point to pay off my debt before it reaches 30%. Good advice.

  7. Dana

    What an insightful article on the things that can affect your credit score.

    I agree with what you said about having one late payment. A friend of mine was always great with her utility payments. Sometimes she even paid before the deadline. One month, she made a late payment, and it was like everyone had amnesia all of a sudden. They forgot that she was always on time for years and that one time she ended up paying late was like the scarlet letter. She was furious, to say the least. Hopefully, it´s not too late for her to dispute this?

    Yes, auto pay is one of the safest ways to combat late payments.

    Thank you for all of the helpful tips.

  8. kiersti

    This is a such an important article. You see ones credit history is important. However not many are aware of what actually affects it. Sadly I was one of them until I took a finance class this last semester. And it really helped me out. Anyways thanks for talking about this. So many need to start being more aware of how credit works. So thanks for sharing. 

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