The 5 Main Credit Score Factors You Need To Know

Disclaimer: We are not qualified legal or tax professionals and are not giving advice. Always speak with a qualified professional before making any legal or financial decisions.

Pacific Debt Relief is not a credit repair organization nor does our program aim to improve your credit score. The information below is for educational purposes to help consumers make informed decisions as it relates to credit and debt.

In a world where your financial opportunities hinge on a three-digit number, understanding the dynamics of your credit score is crucial. Whether you're eyeing a new home, dreaming of a new car, or simply striving for financial freedom, the key lies in mastering the factors that affect your credit score.

This article peels back the layers on the five fundamental aspects that determine your creditworthiness. With expert insights and actionable tips, we'll guide you through the intricacies of credit scores, empowering you to enhance your score and unlock the doors to your financial aspirations.

Ready to take control of your credit future? Let's dive in.

If you'd like to skip the article and speak to a debt specialist right away, click here for a free consultation.

What Affects Your Credit Score?

FICO and VantageScore are the two credit scoring companies that determine your score and report it to TransUnion, Equifax, and Experian. They look at five factors: payment history, credit utilization ratio, length of credit history, the mix of credit types, and recent applications.

Payment History

Your payment history is the most important factor in determining your credit score. FICO weights it at 35% while VantageScore says that it is very influential. If you pay your bills late – by 30 or more days – or miss payments, your credit score will take a huge hit.

• Always pay your bills on time.
• If the bill comes due out of sync with your payday, ask your lender if you can change due dates so that your paycheck and the bill arrive at the same time.
• If you pay online, don’t wait until the last minute to pay your bill. The payment can be delayed and will hurt your score.
• Show progress on paying down bills.
• Check your credit reports once a year (it’s free) to make certain that all information is correct.

Credit Utilization Ratio

The credit utilization ratio looks at how much debt you have compared to how much revolving credit you have. Your goal is to have the credit utilization ratio down as much as possible with most experts recommending a credit utilization ratio of 30% or less.

The formula is to divide how much debt you have on your cards by how much credit you have on your cards, then multiply that by 100 for a percentage.

An example would be if your credit card had a balance of $300 and your limit was $1000. Your CUR would be $30%.

We discussed this in greater detail in How to Cancel a Credit Card Properly with examples of how paying off debt improves your CUR.

• Pay off credit cards to improve your credit utilization score.
• You can also ask that your credit limit be increased. Just don’t actually charge that increase!

Age of Credit

Lenders like to see that a potential debtor has a long credit history. This creates issues for younger people or for those who prefer to pay in cash.

• Keep $0 balance credit cards open as long as they do not have annual fees.

Credit Mix

Lenders like to see that you have different kinds of credit on your credit report. This can include mortgages and car loans along with credit cards. If you rent, you can add that history to your credit report so that you have more data.

• If you don’t have a mortgage or a car payment, you can use a rent reporting service to add to your credit mix. It does cost money.
• Take out a small loan and then repay it over time, just to add an extra source of creditors to your report. Put the money from the loan into a savings account and only use it to make monthly payments.
• Add the information to Experian Boost which will affect your Experian score.

Read more about Different Kinds of Debt

Recent Applications

The more times you apply for credit the more hits your credit score will take. These are called hard inquiries or hard pulls. A soft pull includes checks by potential landlords or employers prescreens you. Soft pulls won’t hurt your credit score.

Always pay your bills on time! Your payment history is important not only to future lenders but to landlords and employers. They get a rough idea about your level of responsibility and whether you are a security risk. If you’ve gone through a rough patch and have paid bills late, you can explain your situation to a potential employer.

Your next concern is to pay down your outstanding bills and improve your credit utilization score. A budget is imperative and you may need a financial reset.

Too Much Debt and Bad History

If you have more than $10,000 in credit card debt and can’t make even minimum payments, you may be a great fit for debt settlement. Debt settlement negotiations with your creditors to lower the amount that you owe while you build up a savings account to pay the decreased debt amount. There can be some temporary effects on your credit score, but if your score is already beaten up, it may be a good solution.

Checking Your Credit Report and Score

Before trying to improve your credit score, it's important to check your current credit report from all three bureaus and know your starting credit score. You can get free annual credit reports from AnnualCreditReport.com. Request one report every four months to keep an eye on your credit year-round. These reports provide detailed information on your payment history, credit utilization, types of credit, new accounts, and more.

For regular access to credit scores, free services like Credit Karma provide VantageScores updated monthly. They also have free credit report snapshots from TransUnion and Equifax. Monitoring your credit report and score will allow you to track improvement over time.

If you spot any incorrect information while checking your credit report, you can start the dispute process to correct errors. This is important since mistakes can significantly damage your score. 

Strategies for Improving Credit Utilization

Your credit utilization ratio compares your total credit card balances to your total credit limits. Experts recommend keeping credit utilization below 30%. However, people with the best credit scores tend to use less than 10% of their total credit limit.

To lower your credit utilization:

• Request credit limit increases on cards with high balances. This instantly lowers utilization since you now have more available credit.
• Make extra mid-month payments to bring balances down before the statement closing date. This lowers the balance reported to the credit bureaus.
• Use the Credit Karma credit simulator to estimate how potential actions like balance transfers or new accounts may impact your credit scores. This allows you to make informed decisions to lift your scores.

If your debt feels completely unmanageable, [our financial reset article](link to financial reset article) discusses options like debt consolidation and management plans. These can help organize payments as you pay down balances.

A few ways to build your credit in these areas:

• Become an authorized user on a spouse or family member's old credit card they've managed well. This links the card's positive history to your credit report.
• If you have no installment loans, consider a small personal loan with a set repayment structure. Manage it well to add to your credit mix.
• Before applying for new credit, use a score simulator to understand impacts to your credit age and inquiries. Minimize applications whenever possible.

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