A credit score is a three-digit number used by financial institutions to evaluate your creditworthiness, or the likelihood that you’ll pay back your debts. When a consumer applies for a credit card, mortgage, student loan, auto loan or other line of credit, a lender usually pulls a credit score to help the lender decide whether or not to extend credit.
There are six key credit-influencing factors that are commonly used in calculating your credit score, although the actual credit score number may differ depending on which credit bureau (Equifax, Experian or TransUnion) pulls the information and what kind of credit score model is used. Here are the six main factors and how they can impact your credit score.

1. Open Credit Card Utilization

Your open credit card utilization rate is your available credit compared with how much you’re using at any given time. It can be calculated by taking your total open credit card balances and dividing that number by your total open credit card limits. The resulting percentage is your utilization rate. The 5 factors to determining your credit score. Graphical Representation.It’s important to note that your credit card utilization rate is not calculated by looking at the balance you carry over from month to month. It is calculated using the balance you have at the time that your credit card issuer reports to the credit bureau. Therefore, it is not necessary to carry over a balance from month to month. You could maintain a healthy credit card utilization through regular credit card use and paying off your balance every month.

2. Percent of On-Time Payments

Your percentage of on-time payments represents how often you make payments on time. It’s often a heavily weighted factor in calculating a credit score, so just one or two late payments could significantly affect your score. Paying bills on time is one of the best ways to keep up good credit health; it shows lenders and creditors that you’re reliable and will pay back your debts.

3. Number of Derogatory Marks

These include accounts in collections, bankruptcies, foreclosures and liens. Your credit score will be severely negatively affected by a derogatory mark on your credit report. Derogatory marks typically take seven to ten years to clear from credit history, and they generally cannot be removed earlier. A derogatory mark could severely influence your chances of getting approved for credit; it indicates to a lender that you may have significantly mismanaged credit in the past.

4. Average Age of Open Credit Lines

This factor averages the ages of your open credit cards, mortgages, auto loans, student loans and other lines of credit on your credit report. If your credit history is lengthy, lenders have more information to accurately assess creditworthiness. It’s also frequently an indication that you have been able to successfully manage your credit. For this reason, closing your oldest credit card account is typically ill-advised. It will shorten the average length of your open credit lines and reduce your available credit, possibly increasing your credit utilization rate. Think carefully about when you may want to close an old credit card account, and when you may want to avoid doing so.

5. Total Number of Accounts

This credit score factor totals up your number of credit cards, auto and student loans, mortgages and other lines of credit. Consumers with a higher number of credit accounts generally have better credit scores, since they’ve been approved for credit by more lenders. Also, having various types of credit–both revolving and installment–on your profile can positively contribute to your creditworthiness. However, it’s typically not recommended to open several new lines of credit simply to increase your total number of credit accounts. This factor of your credit score is usually weighed less heavily than the rest. If you are in the market to apply for new credit, make sure you first read reviews and research which product is right for you.

6. Total Hard Credit Inquiries

The final factor commonly used in your credit score is your total number of hard credit inquiries. Hard inquiries occur when a financial institution, such as a lender or credit card issuer, checks your credit in order to decide whether to approve you for a loan or credit card. A hard inquiry may occur when you apply for any of the following:
  • Auto loan
  • Student loan
  • Business loan
  • Personal loan
  • Credit card
  • Mortgage
One hard inquiry could negatively affect your credit score by a few points, but the effect typically will begin to lessen after a couple of months. Multiple hard inquiries generally will more significantly impact your credit score, and can communicate to lenders that you are desperate for credit or are unable to qualify for credit. For this reason, it’s a good idea to avoid applying for several lines of credit at once.

Conclusion

It’s important to know that, while some of these factors are weighted more heavily than others, no one factor works independently of the others. Each one can contribute to your overall credit score.