What factors affect your credit score?


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Your credit
score is one of the most influential components when it comes to being approved
for loans and credit cards, and it is determined by a number of different
factors. This includes your history of on-time payments and how much debt you
owe as well as what types of credit you have and how long your credit history

Knowing what affects your credit score is the first step to
ensuring your score stays high so you can qualify for financing opportunities
when they arise. We’ll address all your questions about what affects your
credit score, as well as how to keep track of it.



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Related: What Is a credit spread? Explained and defined

Why a Good Credit Score Is Important

In a nutshell, having a good credit score provides opportunities
for you financially and can help you spend less overall on financing. If you want
to buy a car, a good credit score can help you find a loan at a low rate.
Similarly, having good credit is key to opening a credit card.

Having a bad credit score — generally anything under 500 on the scale of poor to exceptional credit —
can limit your financial opportunities. If you have bad credit, you may not
qualify for loans that you apply for, or if you do, you may have higher
interest rates. You also may not get approved for a credit card, unless it’s a
secured card, which requires a deposit and has a low credit limit. A bad credit
score could even hamper your job search, particularly if the job involves
handling money.

The bottom line is that having bad credit hinders your ability
to grow financially, so it’s important to do what you can to maintain a good
credit score.

5 Factors That Influence Your Credit Score

The first step toward building your credit score is
understanding what factors help to determine it. In general, these are the five
credit score factors that shape your score:

#1: Credit Utilization

When it comes to what affects your credit score, one of the most
important factors is how much credit you have available versus how much debt
you currently have. Called your credit utilization, you can calculate this
number by dividing your outstanding debts by your total credit available.

Let’s say you have three credit cards with a total credit limit
of $30,000. You owe $3,000 in total. So, your credit utilization would be:


Your credit utilization of 10% (you’re using 10% of your total
available credit) is great, as lenders generally want to see a utilization rate
below 30% to approve a loan application.

#2: Payment History

You might not feel like an occasional late payment on a credit
card is a big deal, but it can impact your credit score negatively. In fact,
payment history accounts for 35% of your FICO score (the scoring system for
the credit bureau Experian).

The easiest way to raise your credit score? Pay your bills on
time. Many loans and credit cards will allow you to set up autopay, which is a fool
proof way to make sure you never miss a payment.

#3: Credit History Length

You’re not born with a credit history; it has to be built over
time. Many college students start the journey by opening their first credit
card account. This is a great place to start, though remember that good habits
like paying on time and keeping your credit utilization rate down will help
build good credit.

And lest you think if you want a new credit card you need to
close an old one, you don’t. The longer you have relationships with credit
companies, the better your credit.

#4: Types of Credit

While this factor isn’t nearly as important as the others, the
types of credit you have can impact your credit score. Having a nice mix of
credit — such as credit cards, a home mortgage, and an auto loan — can
contribute positively to your credit scores, though it isn’t required.

#5: Recent Applications

Whenever you apply for credit, whether that’s a car loan or a
credit card, there is what’s called a “hard inquiry” on your credit report. If
you make several applications within a few days or weeks of one another, it may
be seen as derogatory on your report, and your credit score might dip a bit.

Consider your credit needs carefully and try to look for lenders
that let you see if you prequalify, since that is considered a “soft inquiry”
and won’t impact your credit the same way.

Remember, There Are 3 Main Credit Scores to Consider

While the factors above are what generally affect your credit
score, you actually have three different credit scores, each of which
may be calculated slightly differently. These three credit scores come from the
following three personal credit bureaus that track your financial activity:

•   TransUnion

•   Experian

•   Equifax

Each bureau has its own credit scoring system that it uses to
determine your score. Some loans and credit card companies report to one or two
bureaus — or even all three — so it’s important to know that your activity may
show up slightly differently depending on the reporting agency.

How to Track Your Credit Score

Now that you understand what affects your credit score, it’s
your responsibility to stay on top of your score so you know when it changes.
Each credit scoring bureau updates scores on a different schedule, but you can
expect updates roughly every 30 to 45 days.


There are several places you can check your credit score. Some
banks and credit card issuers offer the service free to customers.
Additionally, you are entitled to one free credit report a year from AnnualCreditReport.com, which
provides your credit reports and scores from each of the three credit bureaus.

Tracking your score is important even if you don’t plan to take
out a loan or open a credit card any time soon. Make sure to regularly review
your report to ensure there are no discrepancies, such as a late payment you
know you didn’t make, or an open account you closed. If you see anything that
is incorrect, contact the credit bureau immediately to get it resolved.

The Takeaway

Once you understand what affects your credit score, you have the
power to improve your score by taking steps such as reducing your credit
utilization and paying your bills on time. As you build your credit, you will
qualify for better loan offers and interest rates on credit cards, which can
empower you to purchase what you need without high expense.


Learn more:

This article originally appeared on SoFi.com and was syndicated by MediaFeed.org.


Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. A hard credit pull, which may impact your credit score, is required if you apply for a SoFi product after being pre-qualified.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website.

External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

SoFi’s Relay tool offers users the ability to connect both in-house accounts and external accounts using Plaid, Inc’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score provided to you is a Vantage Score based on TransUnion™ (the “Processing Agent”) data.

More from MediaFeed:

What credit score is needed to buy a house?


What’s your number? That’s not a pickup line; it’s what a lender will want to know. The number will range from 300 to 850, and it will weigh heavily in whether you qualify for a conventional or government-backed loan and at what interest rate.


The national average credit score has inched up in the past few years, all within the range considered “good.” But applicants with “fair” and even “poor” credit scores can and do secure mortgages.


Below, we’ll cover the minimum credit score for a mortgage and how you can improve your credit score if needed.


Related: Understanding mortgage basics




Lenders look at a credit score to help determine whether a potential borrower is trustworthy. Considering that the recent median home sale price was over $350,000 and that financial institutions hold about $10 trillion in mortgage debt, lenders want to know that a borrower is solid and that repayment will be made.


Credit scores were created by the Fair Isaac Corp. to put a simple numerical representation on a person’s history of obtaining and repaying debt.


There are now other institutions that also calculate credit scores, but FICO scores are the most commonly used. Experian, Transunion and Equifax are the three credit reporting agencies that collect information on your history of borrowing and then FICO or another company amalgamates the information into a score between 300 and 850.




In general, those with a strong history of making on-time payments on their debts will have higher credit scores. Here’s what goes into calculating a credit score:

  • Payment history (35%): Considers whether the applicant has made payments on time.
  • Credit utilization (30%): The ratio of how much you could borrow from all accounts vs. how much you are borrowing. The lower your credit utilization, the better.
  • Length of credit history (15%): Histories with accounts that have been open for longer are seen more favorably than those that have been open for less time.
  • Types of credit (10%): Having multiple types of debt is preferable. Installment credit, such as an auto loan, personal loan, student loan or mortgage loan, and revolving credit, like a credit card, are both considered.
  • New inquiries (10%): Each time a new inquiry on credit is made, there can be a negative effect on a credit score. Credit inquiries happen when opening credit cards and taking out loans, and even when a lender does a “hard pull” on your credit history.


i_frontier / istockphoto


Here’s how credit scores are generally classified:

  • Exceptional: 800-850
  • Very good: 740-799
  • Good: 670-739
  • Fair: 580-669
  • Very poor: 300-579

In general, lenders consider applicants with “bad” or “poor” credit score subprime borrowers. Depending on what type of mortgage loan an applicant is trying to acquire, it may be hard to obtain a loan with a credit score lower than around 600.


If you are trying to acquire a conventional loan, you’ll likely need a credit score of at least 620.


With an FHA loan, 580 is the minimum credit score to qualify for the 3.5% down payment advantage. Applicants with a score as low as 500 will have to put down 10%.


The FHA program was created to get applicants with lower credit scores into homes. The loans are insured by the Federal Housing Administration, so lenders are more lenient.


A VA loan usually requires a minimum score of 580 to 620; and a USDA loan, 640.




Credit scores aren’t the only factor that lenders consider when reviewing a mortgage application. They will also require information on your employment, income, and bank accounts.


A lender facing someone with a low credit score may increase expectations in other areas like size of the down payment or income requirements.


The lowest credit scores that lenders are willing to accept change with the economic environment. During the housing crisis of 2008 and the years after, it was very difficult for borrowers with credit scores lower than 700 to obtain loans.


During better economic times, credit score requirements for borrowers may loosen. Therefore, it is a bit of a moving target to nail down the precise average or the lowest possible credit score one must have to receive a mortgage loan.




Working to improve a credit score before applying for a home loan could save a borrower a lot of money in interest over time. Lower rates will keep monthly payments lower or even provide the ability to pay back the loan faster.


Let’s look at an example using a mortgage calculator: If you were take out a mortgage on a $400,000 home after putting 10% down with a 4.5% interest rate on a 30-year fixed rate mortgage, your monthly payment would be $1,824 and you would pay $296,663 total in interest over the life of the loan.


If you were to take out that same loan with a 5.5% rate of interest, your monthly payment would be $2,044 and you’d pay $375,854 total in interest. The difference of 1% in interest results in almost $80,000 paid over time.


Improving your credit score will take a bit of time, but it can be done. Here’s how.


Chainarong Prasertthai // istockphoto


Reporting errors are quite common, so be certain that your credit history doesn’t mistake a missed payment or report a debt that’s not yours. You can get a free credit report 


once a year from each of the three reporting agencies: Transunion, Experian and Equifax.




If you haven’t been doing so, it could take up to six months of on-time payments to see a significant improvement.


travellinglight / istockphoto


If you do not have credit established, an easy way to do so is by opening a credit card. But only do this if you are prepared to use the credit card responsibly. This means paying back the card, in full, each month. Do not simply pay the minimum payments.


If you are having trouble qualifying for a card, look into a secured credit card. With a secured card, you put a cash payment down that works as your line of credit, proving you can manage a credit card.




This will increase your credit utilization ratio by showing that you have lots of available credit that you don’t use. It is best to keep the credit utilization ratio below 30%, meaning you’re only using 30% of your available credit at any time.


Understand that this number can be assessed at any time during the month, not just on the day that you pay your bills. Even if you pay your cards in full every month, if you’re consistently using more than 30% of your available limit, you could get dinged.





If you are working to pay off credit cards, don’t close them once you’ve paid them off. Keep them open by charging a few items to the cards every month (and paying them back).


Remember, sources of debt that have been in use for longer are preferable to ones that are new. For example, if you have two credit cards, each has a credit limit of $5,000, and you have a $2,000 balance on each, you currently have a 40% credit utilization ratio. If you were to pay one of the two cards off and keep it open, your credit utilization would drop to 20%.




If you have multiple credit cards and are struggling to manage them and pay them off, this might be a good solution. A personal loan may have a lower rate.


Another option for those with lower credit scores is to have a co-signer on a mortgage loan. If this person has a better credit score and financial situation than the main applicant, it could greatly improve the rate that a lender will offer. Only go down this route if this is a relationship that you can trust completely.


Once you feel that your credit score is ready, be sure to shop around for a home loan at several lenders. You want to be sure that you’re getting the best rate given your personal financial situation, and not every lender has the same criteria.


Know that even with credit scores that aren’t perfect, there are options for people who want to be homeowners; it’s just a matter of seeking out those options.




What credit score is needed to buy a house? The numbers hinge on the economic climate, lender and type of loan, but those with imperfect credit often manage to secure home loans. First, know your credit score, take time to improve it if needed, and compare lender offers.


Learn More:

This article
originally appeared on 
SoFi.comand was
syndicated by


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