5 Key Factors That Impact Your Credit Score

Your credit score can influence everything from getting approved for a loan to securing a rental or even landing a job. But despite their importance, credit scores are often misunderstood. This guide is designed to demystify credit scores, explain what impacts them, and offer practical steps you can take to improve yours.
 

What Is a Credit Score?

A credit score is a three-digit number that gives lenders a quick snapshot of your credit health. It’s designed to predict how likely you are to repay borrowed money on time. The higher your score, the lower the risk you present to lenders.

Most credit scores fall between 300 and 850, with higher scores generally signaling better credit habits. Scores are calculated using credit report data from one or more of the major credit bureaus. These scores can vary depending on which credit report and scoring model is used.
 

Why Do Credit Scores Vary?

It’s normal to have multiple credit scores. Different lenders may use different scoring models, like FICO® or VantageScore®, which weigh information slightly differently. Plus, not all credit reports contain the same information. One bureau might have data that another doesn’t. Timing also matters, since scores can change as your credit activity changes.
 

What 5 Factors Affect Your Credit Score?

While scoring models differ slightly, most use the same core categories to calculate your score. According to Experian, one of the three major credit bureaus, here’s a general breakdown of how credit scores are determined:

1. Payment History – 35%
   • Your track record for paying bills on time. Late payments, collections, and bankruptcies can hurt this part of your score the most.
2. Amounts Owed – 30%
   • Also known as credit utilization, this looks at how much of your available credit you're using. Keeping your balances low, especially on credit cards, can help.
3. Length of Credit History – 15%
   • How long you've had credit accounts open. A longer credit history can help, especially if you’ve handled your accounts responsibly.
4. Credit Mix – 10%
   • Having a mix of credit types, like credit cards, auto loans, and a mortgage, can show lenders you're experienced managing different forms of credit.
5. New Credit – 10%
   • This includes recent credit inquiries and newly opened accounts. Too many applications in a short period might raise red flags.

What Is Considered a Good Credit Score?

Credit scores typically range from 300 to 850. While scoring models may vary slightly, most follow this general scale:

Poor Credit: 300 to 579
You may have difficulty qualifying for loans or credit cards. If approved, you’ll likely face higher fees and interest rates.

Fair Credit: 580 to 669
Moving from poor to fair credit can improve your chances of qualifying for financial products, particularly if your score is in the upper range.

Good Credit: 670 to 739
With good credit, you’re likely to qualify for loans and credit cards with favorable terms, including lower interest rates.

Very Good Credit: 740 to 799
This range opens the door to most credit products, often with the lowest available rates.

Exceptional Credit: 800 to 850
Exceptional credit can give you access to premium financial offers and provide more flexibility if your score fluctuates.

A higher score can help you qualify for better financial products, including lower interest rates and higher credit limits.
 

How to Improve Your Credit Score

Improving your credit score takes time and consistency, but here are a few strategies that can help:

• Always pay on time. Set reminders or enable auto-pay to avoid missing payments.
• Lower your balances, especially on credit cards. Aim for using less than 30% of your available credit.
• Avoid opening too many accounts at once. Each application can cause a small dip in your score.
• Keep older accounts open. Even if you don’t use them often, they help lengthen your credit history.
• Review your credit reports. Check for errors or fraud, and dispute any inaccurate information.

Your credit score isn’t set in stone and it can change based on your financial behavior. You can work with a Provident Certified Financial Coach⁰⁰⁹  to review and strategize on how to manage your credit responsibly and reach your financial goals. You can also use Provident’s Credit Score Tool in online and mobile banking to monitor your credit score and track your progress over time.

Schedule an Appointment with a Certified Financial Coach