What are the Factors That Impact Your Credit Score?

Estimated reading time: 3 minutes

How aware are you of your credit score? Many people just think of the three-digit number that measures credit health without knowing what affects the way it rises or falls. By learning more about your credit score and the factors that impact it, you can adjust your personal finance habits to better meet your goals.

Why Does Your Credit Score Matter?

When you use a loan for financing, the institution that gave you money wants to be sure you can pay them back. That’s where your credit comes in. Your credit score and history provide insight into your financial reliability, indicating how likely you are to repay based on your past payment and loan management.

What are the Factors that Impact Your Credit Score?

Your credit score can vary slightly depending on what reporting agency is used. FICO credit scores use different scoring models than VantageScore or other custom models. Regardless of the scoring model, the same five factors influence your credit score.

1. Payment History

Your payment history reflects your record of how and when you pay back your bills. Paying your credit accounts and bills consistently and on time is always best practice to ensure your credit score and debt-to-income ratio aren’t negatively affected.

2. Amounts Owed

The amounts you owe relative to the credit you have available also affects your score.

However, having open credit accounts and owing a balance doesn’t necessarily mean you’re a high-risk borrower with a low score. That’s why they will also look at your credit utilization ratio.

A credit utilization ratio is the measurement of the amount of available credit you’re using divided by the total amount of money loaned to you. Keeping a low credit utilization ratio may help you earn and keep a better score.

3. Length of Credit History

Credit scoring models consider the age of your oldest account, the age of your newest account, and the average age of all accounts. Keeping your older accounts open and active can positively impacts the length of your credit history and may help you increase your score.

4. New Credit

Every time you open a new credit account, your score is impacted for a brief time. Before you open a new account, experts recommend considering whether having that extra credit is worth the drop it brings to your score.

5. Credit Mix

Your credit mix refers to the diversity of accounts that may show up on your credit report. Revolving credit refers to general credit cards, retail store credit cards, and established lines of credit. Installment credit is long-term and consistent, such as a mortgage, car loans, and student loans. A healthy mix would include revolving and installment credit that is paid consistently.

Credit Health Reflects Financial Health

Getting credit healthy helps you prepare to buy a home! Even though our Loan Originators are not credit experts, they can offer our borrowers assistance from a Fannie Mae approved platform.

We’re here to support you during the mortgage process! Contact us today to get connected with a Loan Originator who will support you all the way to the closing table.