5 Factors that Determine your Credit Score

What makes a good credit score?

Here are the factors that determine your credit score and the steps you can take to improve it.

April 20, 2020

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Whether you’re working to build good credit or trying to avoid the negative impacts of an uncertain financial situation, it’s helpful to know the five main factors that determine your credit score and history. As people are searching for available help to pay their bills during this pandemic and weighing which loans or bills to pay fully, it can help to know which factors have the greatest impact on your credit score.

The information below can clear any credit confusion and help you make the best choice for your personal finances.

What factors define your credit score?

Payment History (35%): Your payment history has the greatest impact on your credit. If you are late paying off your balance, your credit score will drop. Alternatively, timely and responsible payments boost your credit and increase your eligibility for future loans and benefits.
Credit Usage (30%): Your credit usage is the ratio of the amount you spend on your card divided by your credit limit. The recommended credit usage ratio is 30% or under, across one or multiple cards. So, if your only credit card has a limit of $15,000, you should be spending no more than $4,500 on that card and paying it off completely and on time in order to maintain a good credit score.
Age of Credit Accounts (15%): Having older credit accounts that you pay off fully and consistently also helps build your credit. Since lenders look at your longest account, it is smart to keep your oldest credit card open, even if you are no longer actively using it. This indicates that you have a consistent history of financial responsibility.
Diversity of Account Types (10%): One of the smallest factors is how many different types of credit a person uses, ranging from credit cards to home, car, or student loans. While having a range of credit lines can benefit your score, you should by no means take out a loan for the sake of improving your credit.
Inquiries (10%): When you apply for a new line of credit, such as a credit card or loan, the relevant party inquires about your credit. This is considered a “hard inquiry”, and unlike a personal credit report request, these hard inquiries will become part of your credit report and do lower your score. You should be careful of how many credit lines you apply for in a short period of time.

How to Maintain Good Credit During COVID-19

Try to pay the minimum. On-time payments of your bills has the greatest impact on your credit score, making it the most important factor to keep in mind. If you are financially able, paying off at least your minimum each month during this crisis will prevent lasting damage to your score and future worries.
Freeze your credit. During this pandemic, scammers are using COVID-19 scams such as claims of free testing, faster stimulus checks, and more to steal peoples’ confidential information. If scammers gain access to your Social Security number, they can open new lines of credit in your name, steal your identity, and severely damage your credit score. Check out our guide on how to freeze your credit. It’s easy, free and can be reversed at any time.
Learn how to approach bill payments. U.S. PIRG Education Fund has put together advice on how to approach paying your bills, how to address student debt, how to reduce your energy use, how to pay your utilities and more.

How and when can you check your credit report?

The three big credit bureaus are Experian, Equifax, and TransUnion, and each generates its own report of your credit. By law, you are guaranteed a free credit report from each bureau every year, upon request. So, to have the most consistent knowledge of your credit standing and any potential frauds that may occur, you should request a report every four months, alternating between the three bureaus. Personally requesting your credit score three times a year will not impact your score in any way.

IMPORTANT COVID-19 UPDATE: From now until April 2021, Experian, Equifax, and TransUnion have announced they are offering free credit reports to all Americans on a weekly basis. You can access yours at AnnualCreditReport.com.