What Does (And Doesn't) Affect Your Credit Score | Richard Banks & Associates, P.C.

When managing your finances, the credit score can seem like a mysterious number. If you are working to improve your credit score, it is important to know what factors are weighed in so that you are able to focus your resources on the right things to improve it.

Factors That Impact Your Credit Score

When evaluating your credit score, it is important to be knowledgeable about what does and does not play a role. Here are things that impact your credit score:

1. Bill Payment History

Payment history is one of the biggest factors, determining about 35% of your credit score. Factors such as how often you make your payments, how much your payments are and the amount of payment relative to the amount due will all influence your final number.

2. Amount of Debt

Debt level is the second-largest credit score factor, with 30% of influence. The amount of overall carried debt, the ratio of credit balances to credit limit (referred to as credit utilization) and loan balances in relation to original loan amount all play a role. While having a high debt balance can affect your credit score, beginning to pay it down can rapidly improve it.

3. Length of Credit

Length of credit is about 15% of your score, and considers the age of your oldest account and the average age of all accounts you hold. Opening new accounts and closing existing accounts can lower your average credit age and thus reduce your score.

4. Types of Credit

There are two basic types of credit accounts: revolving accounts and installment loans. While this only makes up 10% of your score, having both on your credit report is better. It indicates you have experience with various types of credit and a variety of repayment plans.

Factors That Don’t Impact Your Credit Score

There are a few factors that are commonly misattributed to affecting your credit score, such as:

  • Age
  • Income
  • Education
  • Assets
  • Soft credit inquiries (i.e. checking your own credit)

While these are all factors lenders might look at when deciding on your loan risk, they do not affect the actual number reflected on your credit score.

We know that credit mistakes can happen, but we’re here to help you get back on the right track. Contact us today so we can help you evaluate your finances.