Guide to Credit Score Factors

For a quick measure of your credit health, your credit score is the place to look. Lenders may use it as part of their criteria when deciding whether or not to extend you credit. It’s important to know not just what your score is, but how it’s calculated. Knowing the credit score factors can help you feel confident in the credit-related decisions you make and help you improve your credit health over time.

What affects credit scores?

Much of the financial information in your credit reports affects your credit scores. Information related to accounts like your payment history and balances, can impact your credit score, along with recent credit applications or negative items like collections or bankruptcies.

It’s important to know that your personal information does not affect your credit scores. This includes not just the personal information you see on your credit report, but things like race, gender identity and religion, to name a few. But even though it may have no direct impact on your credit score, don’t ignore the personal information section of your credit report. If you don’t recognize personal information in your credit report, there may have been an error in the information you provided to a lender or you could be a victim of identity theft.

What are the credit score factors?

Your credit score is determined by how you’ve managed your credit. There are many different scoring models; each model and its accompanying versions may weigh scoring factors differently. One model may place more importance on your outstanding balances than another. Or it might place a greater weight on the age of your accounts. In general, the factors tend to be consistent from model to model, but how much emphasis they put on those factors in their algorithms can vary.

Two of the most popular scoring model providers are FICO and VantageScore. Both have different versions of their scoring models. When you get a credit score from TransUnion, it’s a VantageScore® 3.0 credit score. Below is a breakdown of the VantageScore 3.0 credit score factors.

Payment history – 40%

Lenders want to know you’re good about paying back your loans on time. So, naturally your payment history is an important credit score factor. Consistently making on-time payments for your accounts can help you build and maintain a healthy credit history. Alternatively, missing payments can have a significant, negative impact to your credit score.

Age and credit mix – 21%

Your credit mix is another important factor. Yet in our Q3 2022 Consumer Pulse Survey, 25% of consumers indicated they are not familiar with this factor at all. Of all the credit score factors, this is where consumers have the least amount of confidence. So what exactly does it mean?

Age and credit mix measures both the average age of your accounts and the different types of accounts you have. A long history of credit with a diverse mix of accounts can help your score. Does that mean you should go out and buy a car just to get a new installment account on your report? Of course not.

As your finances and credit mature and your credit history becomes longer and remains in good standing, your score will benefit. If you close an account, you may see a drop in your score, especially if it was one of your older accounts.

Utilization – 20%

Your credit utilization is a percentage of how much credit you’re using compared to your total credit limit. If your total credit limit is $10,000 across your accounts and you have an outstanding balance of $3,000 across your accounts, your utilization ratio is 30%.

Paying off credit card balances in full every month will help you save money on interest charges and keep your utilization rate low. If you’re trying to pay down debt, shooting for under 30% utilization is a good goal, but the lower the better. Much of the focus for credit utilization is on your revolving accounts, like credit cards, but some installment accounts may be included in your utilization as well.

Balances – 11%

This is a simple measure of the total amount of balances owed on your accounts, both current and delinquent. Like your utilization percentage, high balances could be an indicator you may have trouble making payments in the future.

New credit – 5%

When you apply for a new credit account, it may result in a hard inquiry on your credit report. These inquiries can signal that you’re looking to take on more debt, but they have a relatively minor impact on your credit score.

The impact of hard inquiries on your credit score tends to lessen over time, and they fall off your credit report after two years. Consider “bunching” your loan applications if you’re rate shopping for a mortgage or auto loan to limit the number of inquiries on your report.

Available credit – 3%

What’s the total credit you have available to you? This factor analyzes whether you have more credit at your disposal than you may need.

How is a credit score calculated?

You may be wondering how, with a click of a button, you’re able to almost instantly receive your three-digit credit score. It may seem complex with so many different scoring models and three nationwide credit reporting agencies (CRAs): Equifax, Experian and TransUnion. So, here’s an overview of how it works:

When you request your credit score, whether it’s through your bank, lender or other service, a request will be sent to whichever CRA the service provider uses. The CRA will run your credit report data through the algorithm of the scoring model they were told to use. For example, if Bank X provides a VantageScore 3.0 score and uses TransUnion as their designated CRA, you’ll get a TransUnion VantageScore 3.0 credit score.

The three nationwide CRAs may not have all of the exact same information. As a result, while the information in your credit reports will be similar, it may not match completely from report to report.  And, because there are different scoring models, it’s normal to see some variation in the credit scores you’re given — this typically isn’t cause for alarm. However, if your credit scores are significantly different, it’s worth reading through your credit reports to see if you can determine a cause. You’ll want to be on the lookout for any account that doesn’t look familiar, which can be a sign of fraud.

How to improve your credit score

Having a good credit score is largely about keeping up with payments, making sure your balances are low, and not taking on more credit than you need. The important thing to remember is that a changing score is based on changing information in your report. As your credit report data changes, your score may as well.

If you apply for credit, you’ll receive a disclosure after submitting your application. The disclosure will include your credit score, what credit score model was used, and the credit reporting agency or agencies that provided the credit report data. The disclosure will also include information on why your credit score could be higher. That information comes in the form of reason codes. Sometimes they are referred to as factors.

Sometimes those reason codes come with an explanation. If the score on your disclosure is based on a VantageScore® model, you can plug those codes or explanations into an online tool, Reasoncode.org, to see what the codes mean.  Here are some example reason codes for VantageScore® 3.0:

32: Balances on bankcard or revolving accounts too high compared to credit limits

85: You have too many inquiries on your credit report

12: The date that you opened your oldest account is too recent

The codes on your disclosure will be in order, from most impactful to least impactful. These reason codes can be a useful tool to help you decide what steps to take to improve your credit score. If a person received the reason codes above, smart steps to take would be paying down balances best they can and taking a break from applying for new credit, if possible.   

Getting comfortable reading your credit reports and understanding credit score factors will help you feel confident as you make strides to improve your credit score. For help, use TransUnion’s interactive credit report guide, which breaks down each section of your credit report and explains how the information can impact your credit score.