Only 27% of adults check their credit score monthly. If you aren’t aware of your credit score, you might be surprised by your three-digit number when applying for loans, mortgages, credit cards, and more.
Your credit score can affect your financial future and your current financial health. Your score is determined by five different factors, but what factor has the biggest impact on a credit score?
Keep reading to find out.
How to Build a Strong Credit Score
Insurance companies, credit card companies, and mortgage bankers are more likely to give you a favorable interest rate if you have a good credit score.
You can build a strong score by mitigating financial risk and understanding the different factors affecting credit. The factors affecting credit are:
- Payment history
- Amounts owed
- Length of credit history
- New credit
- Types of credit in use
Your score can range anywhere from 300 to 850 based on the information in your credit file. But, what factor has the biggest impact on a credit score? Payment history holds the most weight.
What Factor Has the Biggest Impact on a Credit Score?
Your payment history accounts for 35% of your credit score. This is the most weighted factor because it reveals whether or not you can repay funds loaned out to you on time.
If you want to increase your credit score by focusing on payment history, consider these tips:
- Pay your bills on time
- Avoid your accounts getting sent to collections
- Avoid charge-offs, bankruptcy, debt settlements, foreclosures, wage garnishments, public judgments, and liens
If you have no choice but to pay your bills late, paying them as soon as possible is still important. The later you are, the more your score is impacted.
Other Factors Affecting Credit
Although payment history holds the most weight, it’s still important to understand the other factors affecting credit.
Amounts owed is the next most important factor weighted at 30%. Credit agencies take your credit utilization ratio into account. To manage this factor, you can reduce credit card debt and other forms of debt.
Length of credit history holds 15% weight on credit score. A long credit history is helpful, but it holds less weight because borrowers with a shorter history can still prove that they can make timely payments.
New credit and types of credit in use are both weighted at 10%. New credit considers how many accounts you have and if you have applied for new accounts recently.
The last factor is the types of credit in use, such as:
- Credit cards
- Store accounts
- Installment loans
The more types of credits you have, typically the better. However, you shouldn’t open new accounts solely to mix your credit types.
Your Credit Score Is Important
Your credit score is important for deciding whether you can get a mortgage, loans, or credit cards, so you need to know how to improve it.
What factor has the biggest impact on a credit score? Payment history is the most weighted factor, but don’t drop the ball on the other factors trying to improve your payment history.
At FiCare Federal Credit Union, our goal is to help healthcare professionals across the nation meet their financial goals by helping them improve their credit scores and more. If you’re ready to increase your credit score, contact us today or visit our Lutz, FL branch.