What Factor Has the Biggest Impact on a Credit Score? (2024)

When you’re looking to borrow money from a lender or seeking to increase your lines of credit with card issuers, you want the best deal you can get, right?

So, too, do lenders and creditors. They want to make sure the person they extend credit to will pay it back. Thus, how they determine whether you’ll be approved for credit, how much money they’ll dish out, and the interest rate they’ll charge is predominantly determined by your credit score – a number between 300 and 850 that indicates your “creditworthiness.”

Five key factors go into determining your credit score, each of which provides varying degrees of importance. Understanding the impact of each factor can help you aim to establish the highest credit score possible – in turn, helping you obtain better credit terms and save money on interest payments in the long term.

Payment history is the most important factor in maintaining a higher credit score. It accounts for 35% of your FICO score, which is the score most lenders look at. FICO considers your payment history as the leading predictor of whether you’ll pay future debt on time.

Think about it: A lender wants to minimize its risk and ensure it’ll recoup its financial investment. If a lender sees a history of missing payments, it may view that individual as a higher risk. That could result in a smaller line of credit, a higher interest rate, or a denial of the credit application.

The key to building and maintaining a good credit score is to always make payments on time. The longer your history of on-time payments, the more reliable lenders will consider you. Missing a payment isn’t ideal, but it’s worth noting that minor instances shouldn’t affect your score. If you make a credit card payment a day or two after the due date, for example, you may get hit with a late fee by the card issuer. But that’s usually about it.

Most credit card companies don’t report late payments until after a full billing cycle goes by. A payment that is 30 days late may not hurt your credit score as much as a 60-day or 90-day late payment. And should missed payments become the norm – leading to a foreclosure, tax lien, or bankruptcy claim, for example – they can have a major negative impact on your credit score for several years.

The good news is that these adverse credit impacts don’t have to be permanent. The longer any such isolated or brief series of missed or late payment events remains in the past, the less impact it will have over time.

Credit utilization is the percentage of your total credit limit in use. It makes up 30% of your credit score, meaning its impact is nearly as significant as payment history. A common rule of thumb is to keep your credit utilization at 30% or less.

To figure out your credit utilization rate, get your credit cards together, add up the credit limits of each, and then add up the balances on each. If the total balance amounts to 30% or less of your total credit limit, it could positively impact your credit score. If your ratio is higher than 30%, it could have negative effects.

The remaining three components in determining credit score – and, in effect, your ability to borrow money and open credit cards – may not make as big of an impact as payment history and credit utilization rate. But length of credit history, your credit mix, and recent credit inquiries carry enough weight to make the difference in qualifying for credit and more favorable rates.

Length of credit history: The longer an account is open and active, the more opportunity you have to showcase your ability to repay debt. Credit bureaus look at the average age of all your accounts, meaning opening a new account can potentially work against you by lowering your average credit history, even if only temporarily. Length of credit history makes up 15% of your credit score.

Credit mix: Showing you can handle repaying different types of credit, such as revolving credit cards, student loans, and a car loan, can prove helpful to your credit history. Opening new types of accounts can boost your score, but take care not to overextend your spending just to try to increase your credit mix. Credit mix makes up 10% of your credit score.

Recent credit inquiries: Hard inquiries – when a creditor pulls your credit history to decide whether to lend you money – can have a minor negative impact on your credit score. Soft inquiries, like when a creditor checks your score for prequalification purposes, do not harm your credit score. Recent hard inquiries make up 10% of your credit score.

For more on these factors, check out “What Affects Your Credit Score?” and “How Is a Credit Score Calculated?”

In recent years, credit reporting bureaus and credit-scoring companies started working on ways to help people enhance and, in some cases, establish their credit scores. Through programs such as UltraFICO, Experian Boost, and Experian Go, individuals can link non-debt accounts such as utility and cell phone payments, which typically don’t factor into a credit score. However, including such recurring bill payments allows users to display financial responsibility beyond what a credit report or score traditionally indicates, potentially enhancing their loan-worthy status to lenders.

Similarly, credit bureaus may soon factor “buy now, pay later” arrangements into their credit reporting and scoring capabilities, further offering individuals the ability to boost their credit in non-traditional ways.