Credit 101: The Factors That Affect Your Credit Score

Our lives are defined by numbers. In school, we rank ourselves by our GPA scores. Health problems have us obsess over our blood sugar level numbers. But the numbers that can cause people he most stress are their credit score numbers.
Most people use the FICO Score, which ranges from 300 to 850. 300 being the lowest score and 850 being the highest.
Your credit score can have an impact on how likely lenders will lend you money, the interest rate on your mortgage, whether you qualify for credit cards, whether you can open a bank account, and so much more.
What exactly determines this magic number? There are five major factors, each is listed along with the percentage of impact it carries on your score:
Being 30 days late with just one bill, one time, could cause a credit score to drop 90 to 110 points, according to
Thankfully, if you miss the deadline by just a day or two, the damage may not be too excessive. Many companies will not report a late payment to a credit bureau until it’s 30 days late. Plus, FICO takes into consideration other factors like how late you were, how much was owed, how recently you missed the deadline, and how many times you have been late in the past.
If you are late with a payment and it goes into collections, expect an even bigger affect on your score. Since you are not always notified when a bill is sent to a collection agency, be sure to regularly check your credit report. You are allowed one free copy of your report every year from each of the three major credit bureaus — Equifax, Experian and TransUnion. You can request your free copy at
How much you owe on all your credit accounts also has a significant impact on your overall credit score, as does the percentage of your available credit that you are actually using.
A good rule of thumb is to keep this ratio to 30 percent or less. If your credit cards have a total combined limit of $10,000, you should not carry a balance of more than $3,000 in a given month (and the lower, the better). If lenders see you’re close to maxing out your lines of credit, they may view you as a risk for not making future payments.
Lenders want to know how long you’ve been responsibly managing your credit. They consider the ages of your oldest credit account, your newest credit account and the average age of all your accounts. The longer your credit history, the higher your score. Think twice if you’re thinking of canceling cards you have had for a long time. If you cancel your oldest cards, you credit score could drop.
4. CREDIT MIX (10%)
Having several kinds of credit accounts and loans — such as credit cards, an auto loan, a mortgage, etc. — can help your score. This shows lenders you can handle a variety of borrowing. You shouldn’t open an account you don’t intend to use, however, because that could result in a hard inquiry. Plus, you don’t want to manage the potential for more debt than necessary.
5. NEW CREDIT (10%)
Opening multiple new lines of credit in a short period of time can have a negative impact on your score. It signals to lenders that you may be financially unstable and rely on credit cards and loans too much.
Each new account you open will result in a hard inquiry on your credit, which can lower your score. These types of hard inquiries occur when a lender pulls your credit report to evaluate you as a borrower. By contrast, a soft inquiry is when someone who isn’t a lender checks your credit report — such as a potential employer. Soft inquiries won’t impact your score. Simply checking your score through online sites or via your credit card company won’t hurt your credit report either.
Now that you know what makes up your score, do you know where your credit score falls on the poor-to-excellent scale? Here is a general breakdown:
Poor: 300 to low 500s
Fair: Mid 500s to mid 600s
Good: High 600s to low 700s
Excellent: Mid 700s to 850
Bottom line: There’s a lot that goes into your credit score, and it can fluctuate frequently. Be sure to keep tabs on it regularly. Also, be on the lookout for any errors in your credit report, which could hurt your score unnecessarily.

Renee SieradskiCredit 101: The Factors That Affect Your Credit Score