It takes more than on-time payments to build a good credit score. Understanding the five main credit scoring factors can help you boost your credit scores. These five factors help explain how information in your credit reports will be evaluated when your personal credit scores are calculated. The better you score on each of these factors, the higher your credit scores. Using the FICO model, here are the five main factors that affect your credit score:
- Payment History (35%)
- Debt Utilization (30%)
- Credit History/Credit Age (15%)
- Credit Inquiries/New Credit Checks (10%)
- Types of Credit (10%)
Of the five, payment history carries the most weight, which is why it’s so important not to miss payments. But debt is close behind, and is the second most important factor. The age of your credit history is third on the list in terms of importance, followed by account mix and inquiries/new credit.
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Sounds simple enough, but the reality is that credit scores can get pretty complicated. Companies like FICO and VantageScore carefully analyze data in credit reports and track them over time to see which factors help predict how a customer is likely to behave. Each factor can interact with others, making it hard to say exactly how much a particular action (a late payment or inquiry, for example) will affect your scores.
Then there is the fact that there are many different credit scores. Just take FICO, for example. There are multiple versions of FICO scores, including ones that lenders may customize for their own customer base. (Plus a version called FICO SBSS scores used specifically for small business loans.) Each credit scoring model may look at the data that make up these categories a little differently, and so the same information may mean a different number of points subtracted from the score, depending on which credit scoring model is being used.
Here’s an example. Let’s say you had a small medical bill slip through the cracks and you wound up with a collection account on your credit report for $42. If a lender is using FICO 8, that collection account will be ignored because collection accounts where the original balance is less than $100 are ignored under FICO 8. If the lender is using FICO 9 or VantageScore 3, a collection account for any amount will be ignored once you pay it off. But if the lender is using an older scoring model, it will count as a collection account (regardless of amount, or whether it’s paid or unpaid) and will likely hurt your scores quite a bit.
That doesn’t mean you need to throw your hands up in frustration, though you may be tempted to! The basics—these five credit scoring factors—apply no matter which scoring model is being used to evaluate credit report data. So by understanding what these are, and how they generally work, you have a better shot at building and maintaining strong credit. Choose any of the following factors to learn more about what goes into each one:
- Payment History: Pay on time
- Debt Utilization: Keep balances on your credit cards low
- Credit History/Credit Age: Experience matters
- Credit Inquiries/New Credit Checks: Applications and new accounts can bring your scores down
- Types of Credit: A mix of different types of credit accounts can help earn a higher score
Business Credit Scores Are Different
When it comes to your business credit scores, however, the factors that make up those scores may be handled much differently. There are several major commercial credit reporting agencies: D&B and Experian are two of the major ones. Each one has its own method of reporting, and can produce a different type of credit score. D&B produces the PAYDEX score and Experian produces the Experian Intelliscore and Intelliscore Plus, for example. Of these, Experian’s is most like personal credit scores. We’ll explore how the commercial credit agencies look at these factors in more detail in this series.
Tip: You can find out whether your personal and business credit is strong, or needs improvement, with a free account from Nav.
This article was originally written on December 8, 2015 and updated on January 26, 2021.
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