Credit Reports & Scores
What Affects My Credit Score?
Part of the series: Credit Scoring 101
Apr 10, 2021 4 min read
SUMMARY
- A credit score is determined by a complex algorithm that takes hundreds of variables into account.
- It’s well understood what affects a person’s credit score — which means you can absolutely improve it.
What is a credit score?
In general, a credit score is a number that represents a borrower’s credit worthiness. When most people, and the remainder of this article, say “credit score” they are usually referring to the commonly available credit scores from FICO® and VantageScore®. These scores use complex algorithms to determine the likelihood of people failing to repay their debts.
How many credit scores are there?
FICO® offers around 10 scores for each of the three major credit bureaus. This is due to various updates over the years and special scores for certain types of lending like auto-loans and credit cards. VantageScore® has four credit scores currently, with the most commonly used being VantageScore® 3.0 and VantageScore® 4.0. Your credit score will likely vary by company, version, and credit bureau.
What is included in a credit score?
There are hundreds of variables that go into creating your various credit scores. However, they can all be group into a few basic categories:
- Payment History: What is your history of paying your debts?
- Amounts owed: How much do you owe, how many accounts have balances, and what is the utilization rate of your accounts?
- Length of credit history: How long have you had your credit accounts?
- Credit Mix: Do you have successful experience with multiple types of credit?
- New Credit: Is there new credit on your credit report, how much new credit, and how many recent inquires do you have?
How much does each credit factor affect my score?
Knowing what goes into a credit score is good, but credit scores are very complex and there are many different types of credit scores. More importantly, all factors of the credit score are inter-related, so changes may affect each person a little differently. Here are some guidelines based on our research:
- Reducing your credit utilization usually improves your credit score about 5 to 15 points for every 10% decrease in utilization.
- Having an account reported 30 days or more late could hurt you score by 50 points or more.
- Bringing your accounts current and keeping them current for just a few months can improve your score by 30 points or more.
- Making one year’s worth of on-time payments on all your accounts is very positive (up to 100 points if you were recently past due).
- An unpaid collection account may decrease your score by 50 to 100 points. But having two collections likely won’t bring it down another 50 to 100 points.
- Inquiries can impact your score but they’re relatively small compared to other factors.
Elevate your credit score
Olly improved his credit score by 150 points by only paying $120 in collections.
Show me howHow do bureaus create credit scores?
Your FICO Scores and VantageScore Scores are created by Fair Isaac Corporation and VantageScore Solutions, respectively. They do all the math to figure out your score. The credit bureaus only provide the data for FICO Scores and VantageScore Scores.
What can I do to have a good credit score?
Here are best practices for achieving a good credit score (in order of importance):
- You must have credit to prove you can manage it. Three accounts are plenty; more is ok, but don’t use too much.
- Don’t carry debt you don’t need. Credit cards are good for this. Have a few, use them once a month, and pay the balance in full every month and on time!
- Pay every bill on time, every month. One year of on-time payments is good, but two years or more is even better.
- Avoid collections and if you have them, pay them off quickly.
- Don’t apply for credit you don’t need.
- Pay down balances as you can.
About the author
Nathan Foley questions everything — and thinks you should too. As Elevate’s resident mathematician, he pores over datasets to find the truth amid the fluff and translates insights into ideas for improving personal financial resilience.
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Credit Scoring 101