Your credit score is a big factor in determining your interest rate and whether you qualify for a loan. By better understanding the key factors used in credit scoring models, you can feel more in control of your credit score.
Sections in this article cover:
- On-time payment history
- Credit card usage
- Average age of open credit lines
- Total accounts
- Hard inquiries
- Public records
- Credit score types
On-time payment history
Your credit report shows your credit amounts and your track record of repaying them. In fact, paying on time often weighs heavily into your credit score—as much as 35%! Just one or two late payments could significantly affect your score. An easy way to ensure on-time payments is to set up automatic bill pay or create calendar reminders for bill due dates.
Credit card usage
Your credit card usage is represented as a percentage that is calculated by taking your total credit card balances and dividing that number by your total credit card limits. It essentially shows creditors how much of your available credit you use, on average. Lower credit card usage is generally better. If you want to decrease your credit usage, one way is to request an increased credit limit from your credit card provider, but keep in mind that some companies will do a hard credit inquiry that may affect your credit score. See Hard inquiries below for more information.
Average age of open credit lines
The longer your credit history—and the older your accounts—the better. That is why it can be a good idea to keep older credit cards open and active.
Consumers with more accounts (or more lines of credit) often have higher credit scores because it indicates that more lenders are willing to give them credit. Having a good mix of different types of credit is good for your overall credit health, as well. Remember that it's a balance, and you should only open accounts you actually need.
When you apply for credit—like a credit card, mortgage, or loan—a hard credit inquiry appears on your credit report. One hard inquiry will usually have little impact on your credit score—usually a decrease between 1 and 5 points. Multiple inquiries can add up and have a larger impact.
In contrast, a soft inquiry doesn't affect your credit score. Only you can see it on your credit report. Others, like lenders, can't see it. When you check your rate through LendingClub, we use this type of inquiry. Only if you receive a loan through LendingClub will a hard inquiry, which may affect your credit score, appear.
If your loan application is declined by LendingClub or any other institution, the decline isn't recorded on your credit report. Find out more about why being declined doesn't hurt your credit.
Public records like judgments, tax liens, or bankruptcies can appear on your credit report as negative items. These records typically stay on your credit report for 7 years, but certain bankruptcy types might remain for 10 years. If your credit report includes a negative public record, that can tell a lender that you may have mismanaged your credit in the past.
If you want to understand how you stack up on these factors, check out Credit Karma’s free credit score overview.
Credit score types
There are many different types of credit scores. The score you get from a monitoring service or when you pull your own credit report may not match the score used when an institution makes a lending decision. Find out more about the most common credit scores.
Find out more about the impact of making late payments on FICO's site.