Credit Score Mythbusters

Fact vs. Fiction: What Really Impacts Your Credit Score?

When it comes to credit scores, it can seem like everyone’s an expert. Ask a random group of people what factors affect your score the most, and you’ll likely get a different response from each person. And the most frustrating part is they’ll probably all be right—and wrong.

Credit scores are calculated based on a variety of factors, so they tend to feel like a secret code. Fortunately, this code is easy to crack. All you have to do is separate fact from fiction. Once you understand the specifics of how your score is determined, it will be easier to sort through all the misinformation.

Focus on the Facts

There are three primary credit reporting bureaus—Equifax, Experian, and Transunion, but the most trusted credit ratings come from the Fair Isaac Corporation (FICO). While some lenders and creditors look at a combination of scores from the various reports, the FICO score is widely considered the most reliable. According to FICO experts, your credit score is calculated based on five main categories:

Payment history (35%) – Creditors want to be sure of two things: You pay your bills, and you pay them on time.

Amount owed (30%) – To maintain an ideal credit score, aim to keep your overall debt under 30% of your total available credit.

Length of credit history (15%) – Lenders want to see consistency in credit management. This category looks at how long you’ve had established accounts. The longer, the better.

Credit mix (10%) – Credit scores factor in a wide range of accounts, from credit cards and retail accounts to mortgages and installment loans.

New credit (10%) – Opening new credit accounts isn’t always a bad thing but applying for several all at once can have a negative impact on your score.