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The 5 Factors That Decide Your Credit Score, Plus Tips to Improve Each One

December 28, 2018

Your credit score is one of the most important numbers you'll use as an adult. These three digits will determine your eligibility to buy big ticket items such as a house and a car, as well as smaller items using a credit card or loan.

There are three main credit reporting agencies that assign scores: Experian, Equifax and TransUnion. Scores range between 300 and 850, and can change depending on how you perform in certain categories. The higher the score, the easier it will be for you to get approval for loans and credit cards.

Given the importance of your credit score, you need to know how to build and maintain it if you want to be in good financial health.


Building Your Credit Score

There are several important factors that go into determining your credit score, according to These factors include payment history (35%), balances outstanding (30%), length of credit history (15%), credit mix (10%) and new credit applications (10%).

It's important to stay on top of these credit influencers, because they can quickly turn a good credit score into a bad one.


Payment History

Paying bills on time helps build and maintain a good credit score. But even if you pay your bills on time now, a history of missed payments could still affect your score.

When you're renting a new apartment, your potential landlord will be very interested in your payment history. After all, who wants to rent an apartment to someone with a proven history of missed payments? This applies when your bank is considering you for a mortgage or car loan, or when you apply for a new credit card as well.


Balances Outstanding

Balances outstanding refers to how much you owe on your credit cards. This includes purchases and interest. If you have a high balance and only pay the minimum each month, you could be damaging your credit score.

If possible, aim to pay off your credit card each month. If that's out of reach for you, try to pay more than the minimum and work toward paying it off completely.


Length of Credit History

Your credit history is important when you're building credit. No credit history means no credit score. The longer you have lines of credit, the higher your score could be.

I moved from the U.K. to the U.S. in 2007 and had no credit history. I found a credit card that didn't require me to have a credit history, though the limit was low and the interest rate was high. I started by putting groceries on the card and paying off the monthly bill in its entirety. Within a year or so, I was able to sign up for a different card with a higher limit and lower interest rate. I continued paying off the bills each month and was able to get a car loan a couple of years after opening my first credit card.

Now, with 11 years of credit history under my belt, I have a score in the low 800s.


Credit Mix

Another important factor is the mix of credit to your name. That mix could include a car loan, a mortgage, student loans or credit cards.

That doesn't mean you should go out and sign up for a bunch of different loans in the name of improving your credit score. Make sure you're only getting loans for things you really need. Too many loans could stretch you too thin, meaning you might end up missing payments or worse.


New Credit Applications

Applying for too much credit can have a detrimental effect on your credit score. Credit bureaus see customers who apply for too many new lines of credit as risky.

That's not to say you shouldn't apply for new loans or credit cards, but make sure you're only applying for loans you actually need and can afford.


Maintaining Good Credit

Once you've established a good credit score, it's important to keep good financial habits in order to maintain your credit.

But even if you are careful to pay bills on time and keep a good mix of credit to your name, you could be the victim of fraud or identity theft, which will affect your credit score. Additionally, credit bureaus make errors from time to time, which can cause a dip in your score even though you haven't done anything wrong. To avoid this, keep a close eye on your credit score so you can address any issues that arise ASAP.

One way to monitor your credit score is to use an app. Luckily, there are plenty to choose from — some of which you can get for free. These apps typically update weekly or monthly, so you can spot any red flags and get ahead of them before they destroy your hard-earned score.

A bad credit score can follow you around for years, but it doesn't have to. Focus on building and maintaining a good score, so you can enjoy financial health and the lack of stress that comes with it.