These 5 Factors Are What Actually Matters When It Comes to Your Credit

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Five factors determine your credit score: pay history for loans and lines of credit; credit utilization; credit history length; credit mix; new credit and hard inquiries. Tina Russell/The Penny Hoarder
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It’s impossible to overstate the impact your credit score has on your life.

It determines everything from whether you can buy a home or rent an apartment to your credit card interest rates and how much you’ll pay for insurance.

Your credit score is basically just a three-digit number that measures how likely you are to repay your debt. Credit scores range from 300 to 850 and are based on information the three major credit bureaus — Equifax, Experian and TransUnion — have on file for you.

For simplicity’s sake, we’re going to talk about your credit score in the singular, but you actually have three credit scores — one from each of the credit bureaus.

A high score tells lenders that you’ve managed your debt well in the past, while a low credit score indicates that you have a poor history (or not much history) of managing credit.

If you want to build good credit, you need to understand the five credit factors that are used to calculate your score.

The 5 Credit Factors That Matter (and 5 Things That Don’t)

FICO, the data analytics company that calculates most credit scores, has always been hush-hush about the exact formula it uses. But it does tell us that the following five credit factors determine your score:

  • Payment history for loans and lines of credit: 35%
  • Credit utilization (i.e., how much of your total available credit you’re using): 30%
  • Length of credit history: 15%
  • Credit mix: 10%
  • New credit and hard inquiries: 10%

VantageScore, a newer credit scoring system, considers similar factors in calculating your score but weights them differently.

Here are some things that do not factor into your credit score:

  • Payments for expenses like rent, utilities or phone bills. However, missing payments could kill your credit if you wind up with an account in collections or a civil judgement against you.
  • How much money you have. But you are more likely to get approved for a loan if you have more cash on hand, because you will be able to make a bigger down payment.
  • Your age, although because the length of your credit history affects your score, you may find that your score increases as you get older.
  • Your income isn’t used to determine your credit score, though being able to prove steady income can help you obtain credit.
  • Checking your own credit. When you check your credit report, it counts as a “soft” inquiry, which doesn’t affect your credit score.

But let’s delve into the five credit factors that actually do matter.

1. Your Payment History: 35%

If you’re looking to improve your credit score, the single most important thing you can do is make on-time payments toward your credit cards and loans. That’s because your payment history accounts for 35% of your FICO score, making it the most important of the five credit factors.

When you make your debt payments, creditors report those payments to the credit bureaus, and you gradually build a good payment history. Eventually, those payments will help to boost your score.

The quickest way to negatively impact your credit score is to miss a payment.

If you’re more than 30 days late on a payment, your creditor will probably notify the bureaus, which will cause your credit score to drop. If your account goes into collections — which typically happens when your payment is 90 days or more past due — the negative impact to your score is even worse.

Late payments and collections stay on your credit reports for up to seven years, though the impact on your score lessens with time.

How to improve: If you have trouble remembering to pay bills on time, set up automatic bill pay for at least the minimum amount due for all of your debt payments.

Also, get copies of your credit reports (we’ll explain how later) to look for errors. If your reports contain an account in collections that doesn’t belong to you or that’s past the statute of limitations, having the negative information about your payment history removed could improve your credit score. 

Pro Tip

If you can't make a payment, talk to your creditors — ideally before it's due and certainly before the account is sent to collections. They may put you on a payment plan or change your due date.

Money falls on children's building blocks.
Tina Russell/The Penny Hoarder

2. Your Credit Utilization Ratio: 30%

When it comes to credit factors that actually affect your score, what matters isn’t the total amount of debt you have — it’s the percentage of your available credit that you’re using, also known as your credit utilization ratio. It’s the second most important credit factor, determining 30% of your score.

Here’s an example: Suppose your credit card limits add up to $10,000. Your total balances amount to $3,500. Your credit utilization ratio is 35%.

The lower your credit utilization ratio, the better. A utilization ratio that’s too high tells lenders that you’re overly dependent on credit. While most experts recommend keeping utilization below 30%, the actual number you should be shooting for is zero. 

Pro Tip

Don’t believe the credit myth that carrying a balance from month to month helps your score.

How to improve: If you need to lower your credit utilization, keep paying down your debt without adding to your balance. Aim to get to the point where you can pay off your balance in full each month.

You can also improve your credit utilization by getting more credit. If your limit increases but your balance stays the same, your credit utilization ratio goes down.

Try asking for limit increases on your existing accounts. As you’re about to learn, the average age of credit and new credit are both factors that affect your score.

3. The Length of Your Credit History: 15%

Creditors like to see that you have experience managing credit, which is why the age of your credit matters. But if you’re new to credit, don’t get too hung up on age; it only makes up 15% of your overall score.

Both the average age of your overall credit and the age of your oldest account will affect your credit score. That means closing an older account or getting a new credit card could have a negative impact.

Your score could also drop if you pay off debt. For example, if you pay off the car loan that was one of your older accounts, that account will be closed. Even though you’ve done something good for your finances, your score could drop in the short term.

How to improve: There are no shortcuts here. Building your length of credit history takes time.

Think carefully before you close out a card you’ve had for a long time. But if you’re paying high fees or a card is causing you to overspend, don’t worry too much about the impact to your length of credit history.

The negative impact of closing an account is more likely to come from your increased credit utilization ratio, and even then, your score will probably bounce back in a few months, as long as your debt situation doesn’t change significantly.

4. New Credit and Hard Inquiries: 10%

Opening multiple accounts within a short period of time is bad for your credit, because it indicates a high risk of default.

FICO considers the number of new accounts that have been opened within the past six to 12 months, but that only accounts for 10% of your score.

Also included in this category is the number of hard inquiries, which occur when you apply for credit. What’s important to know is that if you apply for the same type of credit within 30 days — for instance, when you’re shopping around with multiple lenders for a mortgage — FICO treats it as a single hard inquiry, so the effect on your credit score will be minimal.

How to improve: Avoid applying for lots of new accounts within a few months, but don’t be afraid of shopping around for a specific type of loan or credit.

And, as we mentioned earlier, if you’re looking to lower your credit utilization ratio, consider asking for increases on your current lines of credit instead of applying for new lines of credit.

5. Credit Mix: 10%

Having a diverse mix of open accounts — credit cards, a line of credit and a mortgage, for example — is good for your credit. But note that the impact is small: It determines just 10% of your score.

How to improve: Don’t put too much emphasis on this credit factor. It’s not worth taking out a loan or going deeper into debt just to have a diverse credit mix.

3 Ways to Check Your Credit

Now that you know about the five credit factors and how much each one matters, it’s time to check your credit. Here are three places you can do so.

You’re entitled to check your credit report for free with each of the three credit bureaus once every 12 months. To do so, visit

While your actual credit scores aren’t included on the reports, you do see all the information that’s used to calculate your credit score. If you find errors, you can dispute them with the credit bureaus.

Your Bank, Credit Union or Credit Card Company

Many let you access at least one of your FICO scores for free, and some even offer free monitoring services.


Some apps like Credit Sesame will let you check your credit score for free, and they often use the VantageScore rather than your FICO scores.

Still, Credit Sesame helpful in estimating your FICO score and monitoring changes to your TransUnion report.

Robin Hartill is a senior editor at The Penny Hoarder.