The 3 Biggest Factors That Affect Your Credit Score

Source: Thinkstock

Source: Thinkstock

Your credit score can greatly affect you if you decide to apply for a loan. When you have excellent credit you’ll get the best interest rates and save hundreds of dollars in fees each year. Having top-notch credit shows potential lenders that you are responsible. The credit score used by roughly 90% of lenders is the FICO score. The higher your score, the more money you may be approved to borrow and the better your terms will be. Your base FICO score, which ranges from a low of 300 to a high of 850, is based on the information in your credit report.

“The days of easy lending aren’t likely to come back any time soon. So now more than ever, knowing how to fix, improve, and protect your credit score is essential for successfully navigating your financial life,” said credit expert Liz Pulliam Weston in Your Credit Score: How to Improve the 3-Digit Number That Shapes Your Financial Future. Here are the three biggest factors that can impact your FICO score.

3. Length of credit history

Credit history length comprises 15% of your total FICO score. The longer you’ve had credit, the better your score will be. The length of your credit history takes into account the age of your oldest account, the age of your most recent account, and the average age of your combined accounts. Your score will also be impacted by how long it has been since there was activity on the accounts. 

2. Amounts owed

Source: iStock

Source: iStock

How much you owe on your credit cards is the second most important factor when it comes to your FICO score. The amount you owe on your credit cards accounts for 30% of your score. So if you’ve been going on multiple shopping sprees and not paying the balance as soon as possible, your score will be negatively impacted. Carrying a large balance from month to month can ding your score. Heavy credit card usage may cause potential lenders to make the assumption that you are struggling to make ends meet, and are using your credit cards as a crutch to get by. It’s best to keep your credit usage below 30% of your available credit.

1. Payment history

Your track record when it comes to making payments is the first thing lenders will review. An excellent history of on-time and complete payments will give your credit a boost. Your payment history accounts for 35% of your overall FICO score. This is why it’s important to contact your current lenders if you think you may be late with a payment. Some credit card issuers may work with you by moving your due date to later in the month. It’s best to address any issues concerning late payments as soon as possible.

More from Money & Career Cheat Sheet: