Ah, the credit score, that three-digit number that rules your life—or so it seems. And while you probably have a general idea of what your credit score means, some things that affect your credit score may surprise you. So that surprise is limited to a little learning and not a slap in the face the next time you apply for a loan or new credit card, here are the main factors that affect your score and some surprising things that can impact it as well.
The main factors that go into how your credit score is calculated are:
1. Payment History
Payment history is the main factor to affect your credit score. It accounts for about 35% of your credit score for each of the scoring models. (The main credit scoring models are FICO and VantageScore.) Your payment history is basically the record of whether you’ve paid your bills on time—or not.
Creditors report your payment activity—good or bad—to the major credit bureaus, typically every 30 days. A single late payment won’t likely hurt your score, especially if it’s a one-time thing. Multiple late payments do affect your score though. This is as true for credit card payments as it is for a mortgage or other loan. Missing a payment on any bill affects your credit score negatively, including:
Other types of payments, such as your utilities or phone bill, don’t affect your credit score until multiple late payments causes the provider to turn your debt over to collections.
2. Amount of Debt
The amount of debt you owe accounts for 30% of your credit score. That debt, also called your credit utilization ratio, is calculated by comparing how much debt creditors have extended to you—AKA your credit limit—to how much of the credit you’ve used. Say you have no loans and a single credit card with a $200 balance and a $1,000 credit limit, your credit utilization rate is 20%.
It’s best to keep your credit utilization to 30% or less. But, keeping it at or under 10% is even better.
The reason debt has such a large impact on what affects a credit score is that it identifies whether or not you’re a high-risk borrower. Naturally, someone carrying less debt is a less risky borrower than someone who’s using quite a bit of his/her credit limit(s).
3. Credit Age or Credit History
Credit age affects 15% of your overall score. When it comes to the age of your credit accounts, there are two main factors that a lender looks at:
As you probably guessed, the older your accounts, the more that affects—and helps—your credit score. Because of this, it’s important not to close out your older accounts unless there’s a good need to do so.
4. Account Mix
Credit mix accounts for 10% of your score. There are two main types of credit accounts that go into that mix, revolving debt—AKA credit cards—and installment debt—AKA loans, such as car loans and mortgage loans. Your credit score is happiest when you have a good mix of both.
5. Credit Inquiries
The two types of credit inquiries as soft inquiries and hard inquiries. Soft inquiries don’t show up on your credit report. A hard inquiry does show up on your credit report and can lower your score in increments for some time before your credit begins to climb again. The fewer hard inquiries your credit report, the better. Hard inquiries, like account mix, make up about 10% of your credit score.
When it comes to what affects credit score numbers, the factors mentioned above are the most common. Some of them are pretty straightforward. Where account mix or credit inquiries might seem a bit more vague. But it can get more vague even than those. Here are 15 other things that can also affect your credit score number—some for the worse, some for better or worse.
1. Reporting Errors
Errors can end up on your credit report and are items that are flat out inaccurate. The can happen from f data entry mistakes or even identity theft. Watch from them by checking your credit reports, which you can do free annually through AnnualCreditReport.com, and by keeping an eye on your credit score, which you can do through a variety of services.
If you do find an error on any one of your credit reports, be sure to dispute it with the credit bureau(s) reporting the error. If you have multiple errors, you need to dispute each one separately with the bureau reporting the errors.
2. Parking Tickets
Leave a parking ticket unpaid long enough and the city will likely send it to collections. Because collections involve outstanding debts, they can appear on your credit reports and do big damage to your credit scores.
3. Utility Bills
Similarly, unpaid utility bills can affect your credit score numbers negatively, when the debt is sold to a third-party debt collector. The third-party collector can report the account to the credit bureaus.
4. Medical Bills
Medical debts can directly affect your credit if you’ve used a credit card to pay for them. They can also indirectly affect your credit if your medical bills go unpaid, since health care providers also send unpaid bills to collections after a certain period of time, usually between 90 and 180 days.
Know though that medical debts are treated differently by most credit scoring models. Some newer models ignore paid medical collections entirely. And because of a 2014 settlement between the three major bureaus and 31 state attorneys general, since 2018, medical debt is not reported until 180 days after it’s incurred.
5. Delinquent Child Support
Unpaid child support is considered debt. And it can be reported to the credit bureaus by the municipality or agency responsible for collecting the payments.
6. Paying Off a Loan
If you pay off your auto loan and it’s the only installment loan you have on the books, your credit score can take a small hit. Sounds backward, but it’s how credit works.
Closing a loan can also negatively affect your credit utilization rate if your remaining loan balances are high.
7. Closing a Credit Card
If you close a credit card you lose a part of your credit limit and your credit utilization rate changes—and not for the better. Your utilization goes up. And that can mean your credit score goes down.
8. Applying for an Insurance Policy
Insurance companies might access your credit history before granting you a policy. That access is usually a hard inquiry. And while one hard inquiry won’t affect your score much, several can. So apply cautiously. And don’t seek a new policy while also apply for a loan and/or new credit cards.
9. Getting a new Cellphone Plan
Cellphone providers also often pull your credit when you sign up for a plan, which again can be a hard inquiry on your report.
10. Not Paying Your Taxes
Leave Uncle Sam’s annual bill unpaid long enough, and it might file a Notice of Federal Tax Lien against you. And a lien can seriously damage your score.
11. Forgetting to Pay Your Rent
For a long time, on-time rental payments did nothing for your credit. And, in many cases, they still don’t. But, the credit reporting industry is moving to include rental data on certain versions on your credit reports. And the industry lets landlords report payment data. Still, even if a lender or service provider isn’t looking at that data, a missed rental payment can wind up going to collections. And the collection agency might report your debt.
The affect can be positive though too. You can even ask your landlord to report your timely payments to help your score.
Also worth mentioning: Landlords tend to pull a special version of your credit report when you apply for a lease, so missing a rent payment could cost you a home or apartment, even if it doesn’t mess up your credit score.
12. That Old Gym Membership
An unpaid gym membership can wind up in collections, so it’s important to cancel one you’re no longer using. Don’t just close or cancel the card you were using to pay the membership. Cancel the membership itself.
13. Bank Overdrafts
Checking and savings account information isn’t included on traditional credit reports. Even so, if you opt for overdraft protection tied to a line of credit and don’t resolve the overage, you could wind up hurting your credit score.
14. Requesting a Credit Limit Increase
When you ask your issuer to change the terms and conditions associated with your credit card, that issuer is likely to pull your credit to see if your standing justifies the change. And that’ll put one of those hard inquiries on your credit report.
Note though that in the case of a credit limit increase, the damage done by the inquiry could be easily mitigated by an improvement to your credit utilization rate, so there are certainly times when asking for an increase is worth it.
15. Opening a CD
A CD or certificate of deposit is a savings account, so how can opening one affect your credit? Oddly, some financial institutions, but not all, do a hard inquiry on your credit when you open a new CD.