Broker Check

What Factors Have the Greatest Impact on Your Credit Score?

April 27, 2023

Fun fact: You probably have dozens of credit scores out there, and each one might be a different number.

Having a good credit score is crucial for achieving financial stability and obtaining loans, credit cards, or even mortgages. However, what you may not realize is that there isn't just one universal credit score that lenders use to evaluate your creditworthiness. Instead, there are multiple credit bureaus, each with its unique method of calculating your credit score, which can lead to discrepancies in your scores.

Moreover, credit scores are complex calculations that take into account various factors such as your payment history, credit utilization, length of credit history, and recent credit inquiries. Each credit bureau has its way of weighing these factors, which can result in different scores for the same person.

So, if you have ever wondered why your credit score may vary from one credit report to another or why a lender might deny you a loan even if you have a high score, it's essential to understand the intricacies of credit scores and how they are calculated. By doing so, you can take steps to improve your creditworthiness and achieve your financial goals.

The most quoted credit scores are from the three major credit reporting bureaus—Equifax, Experian, and TransUnion. Each company uses a different scoring methodology, leading to different results. In addition, different credit bureaus hold different information about you. For example, your car loan might report to TransUnion but not to Experian, while your credit card might report to Equifax but not to TransUnion. There might be a mistake in one credit report but not in another. All these differences influence your credit scores, and because lenders decide which bureau they obtain reports/scores from, it’s important to check all three credit bureau reports for accuracy each year.

While each credit bureau arrives at your credit score using the same criteria, they give different weights to each. The criteria are as follows:1

  • Payment history
  • Amount of debt/credit utilization ratio
  • Length of credit history/credit age
  • Credit mix
  • Credit inquiries

Let’s look at each of them:

Your credit score is an important measure of your creditworthiness, and it impacts your ability to obtain credit and loans at favorable terms. A credit score is calculated using information from your credit reports, which contain information about your credit accounts, payment history, and credit utilization.

One of the most significant factors that affect your credit score is your payment history. Your credit score takes into account any payments you've made on credit cards, loans, and other debts. Late payments, missed payments, and loan defaults can have a negative impact on your credit score. In contrast, consistently making on-time payments can improve it. It's important to note that even one late payment can damage your credit score, and medical expenses are treated the same as any other debt in the eyes of credit bureaus.

Another crucial factor that affects your credit score is your credit utilization ratio. This is the ratio of the amount of debt you owe to the amount of credit that's available to you. A credit utilization ratio above 30 percent can be a red flag for credit bureaus and can lower your credit score. It can signal to lenders that you may be struggling to manage your debt.

The length of your credit history, or your credit age, also plays a role in determining your credit score. The longer you've had credit, the more information lenders have to assess your creditworthiness. If you're building credit, it may take some time for your credit score to improve. However, as you establish a longer credit history and demonstrate responsible credit management, your credit score will likely improve over time. Opening new accounts can also impact the length of your credit history.

Your credit mix is another factor that can affect your credit score. Having a mix of different types of credit, such as a mortgage and a credit card, can demonstrate to lenders that you are able to manage different types of debt responsibly. In addition, lenders may view having a mortgage or car loan more favorably than having only credit card debt.

Applying for credit can also impact your credit score. Excessive inquiries about obtaining credit, known as "hard inquiries," can be seen as a willingness or need to take on too much credit. "Soft inquiries," such as checking your score, do not affect your credit score.

Credit scores range from 300 to 850, with scores between 580 and 669 considered fair, scores between 670 and 739 considered good, scores between 740 and 799 considered very good, and scores of 800 and above considered excellent. The higher your credit score, the lower the interest rate you may qualify for when borrowing money. Therefore, maintaining a good credit score is essential for achieving financial stability and securing favorable loan terms.2 

To maintain a good credit score, there are several things you can do, as outlined in the previous response. Here are some additional details on those points:3

  1. Pay all of your bills on time: This is one of the most critical factors that affect your credit score. Late payments, missed payments, and defaults on loans can have a severe negative impact on your credit score, so it's essential to make all of your payments on time. If you're having trouble keeping up with your payments, consider setting up automatic payments or reminders to help you stay on track.

  2. Keep your credit utilization ratio low: Your credit utilization ratio is the amount of credit you're using compared to the amount of credit that's available to you. A high credit utilization ratio can indicate that you're relying too heavily on credit and may be struggling to manage your debt. To keep your credit utilization ratio low, aim to use only a small portion of the credit available to you.

  3. Don't apply for too much credit at once: Every time you apply for credit, it generates an inquiry into your credit report. Too many inquiries can be seen as a red flag by lenders and may signal that you're taking on too much debt, which can negatively impact your credit score. In addition, opening new credit accounts reduces your credit age, which is another factor that can negatively affect your credit score. Therefore, it's essential to be mindful of how often you apply for credit and to only apply for credit when you need it.

Remember to monitor your credit report. It’s essential to stay aware of your credit history and any errors affecting your credit score. You can request a copy of your credit report from each of the three major credit bureaus (Experian, Equifax, and TransUnion) once per year for free at Note that your free credit report does not include your credit score. However, you can obtain it from other sources, including credit card companies where you have an account. You can also use a credit monitoring service to stay informed about any changes to your credit report.4

Credit is an important financial tool when used responsibly. As it takes time to build or improve your credit score, it’s essential to be consistent and persistent in your efforts. Your credit score will likely improve as you establish a longer credit history and demonstrate responsible credit management.

Credit scores are just one factor that affects your overall financial strategy. We’re happy to meet with you or anyone you know if you have any questions on this topic. Our office may have some resources that can address initial questions about debt management tools.

Mastering the Basics of a Good Credit Score

Building and maintaining a good credit score is essential for anyone who wants to achieve financial stability. Your credit score impacts your ability to obtain credit and loans at favorable terms, and it's a measure of your creditworthiness.

To build a good credit score, it's essential to pay all of your bills on time, keep your credit utilization ratio low, and avoid applying for too much credit at once.

By following these basic principles, you can establish a strong credit history and maintain a good credit score over time. My financial team can help you navigate the complexities of credit scores and provide you with guidance on how to build and maintain a good credit score.

1, August 31, 2021

2, April 29, 2021

3, 2023

4, 2023