The 4 Biggest Factors That Affect Your Credit

What will you learn

Bad credit can be repaired.

There are four primary factors that affect your credit score.

Professional help is available if you need it.

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Unraveling the Complexities of Credit Scoring

Credit is not as complicated as some would have you believe. Hundreds of articles have been published about how bad credit can permanently damage your chances at financial security in life. That’s simply not true. Credit can be repaired if you put the effort in to do it.

Before we get into this, let’s review what a FICO score is. It’s a three-digit number that is used by lenders and banking institutions to assess your creditworthiness. This number is a big deal, so pay attention to it, but don’t worry if it’s low right now. You can change that.

How to Begin the Credit Building Process

There’s nothing to be afraid of. Your FICO credit score is affected by four factors, all of which can be addressed to improve the reports issued by credit bureaus. In other words, you’re not stuck with bad credit. The four factors are as follows:

1.Payment History:

Making your payments on time is one of the most important actions you can take to establish good credit. This accounts for roughly 35% of your overall FICO score. FICO is the number that institutions use to approve loans and credit cards.

2. Credit Utilization Ratio:

If you have a $1000 limit on your credit card and you use $800 of that for purchases, your credit utilization rate is 80%. That’s too high. Paying off balances in full each month is best. Keeping utilization under 30% is recommended.

3. Credit History:

This category accounts for 15% of your overall FICO score. It refers to the length of time you’ve had established credit. Always keep your oldest credit card open to make sure your credit history goes back as far as possible.

4. New Accounts:

Your credit is affected each time that you apply for a credit card or loan. Most lenders do what is known as a “hard inquiry,” which is a deep dive into your existing credit history. Each hard inquiry causes a slight decrease in your credit score.

In addition to these four factors, credit bureaus also look at the mix of credit accounts that you have. How many credit cards? Loans? Mortgages? A healthy mix with a solid payment history usually indicates that you’re a reasonable credit risk, so you’ll have a higher FICO score.

Actions You Can Take on to Improve Your Credit

Paying all your bills on time is the most obvious step. With Experian, which is one of the four credit bureaus that report to banks and lenders, you can actually add your home utilities to payment history to boost your score. It’s an easy way to pick up a few points.

Keep your credit card utilization low and try to pay cash whenever possible. You’ll want to use the cards, but don’t overuse them. When you get offers for new credit cards in the mail, throw them out. Work on maintaining a low balance on the card you have.

Lastly, you should be reviewing your credit report frequently to ensure the information in your report is correct and accurate. Your credit score is calculated based on the information compiled in your credit report. Therefore mistakes and errors, from misspellings to identity theft, could be affecting your score.

Seeking Professional Assistance

If this all seems a bit overwhelming, ask for help. Our experts here at Credit Helpers can help you create a sensible plan to repair your credit and improve your credit score. If you have found mistakes or errors in your report, our trained professionals can assist you in the disputation process to remove the error. The journey to better credit may take time, but you will start to see improvements quickly if you have the right people in your corner showing you how.

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