Factors Affecting Your Credit Score

a man's hands working on a calculator with some notes in front of him

The team at Autohouse Kingston works with a huge variety of clients, with an equally diverse set of credit scores. Seeing first hand the impact your credit has on both the cost of and your ability to secure a vehicle loan, we figured we’d look at some of the factors that affect your credit score. Whether you’re looking for a vehicle loan, mortgage, or simply applying for a credit card, your credit score can determine the amount you qualify for—if you even qualify at all! Of course, we’re all about finding creative ways to ensure you can get behind the wheel of a new vehicle, at a price that works for you. So read on to learn more about the factors affecting your credit score, or give us a call at Autohouse Kingston to learn more.

5 factors affecting your credit score

There are five primary factors that will have the greatest impact on your credit score, that you should keep in mind any time you’re applying for or spending credit. They are:

  1. Your payment history
  2. The amount of debt you have (credit utilization ratio)
  3. Your credit history
  4. Your different types of credit
  5. Any credit inquiries made on your behalf 

Let’s take a look at each of these factors individually, to see how they impact your credit score (and to what extent).

Payment History

Perhaps both the most obvious and important factor in determining your credit score—in fact, it accounts for about 35% of your score—is your payment history. This is why it’s so important that you promptly pay any line of credit in your name, whether it’s a credit card, student loan, mortgage, or car payment. By not paying on time, or not paying the full amount, you run the risk of decreasing your credit score on a monthly basis. Now, the odd late payment won’t ruin your credit score right away, but the more regularly it happens (or if the payment moves to delinquency or collections) the greater impact it will have. 

Amount of Debt/Credit Utilization Rate

The amount of debt you have, or your credit utilization, accounts for about 30% of your credit score. Having debt isn’t a bad thing, in fact you want to have lines of credit open, but it’s a fine line to walk. Debt won’t make you a credit risk, but having a number of maxed-out credit cards certainly looks worse than having a number of credit accounts that you pay on time. 

To calculate your credit utilization ratio, take the amount of credit in your name compared to the amount of credit that you’ve used. So if you had two credit cards that each had $500 limits, with a balance of $150 on each, that would mean you had a $300 balance on $1000 worth of credit. That would make your credit utilization rate 30%. Now, a credit utilization rate of less than 30% will benefit your credit score (of course, the lower the better), while a rate of above 30% will have the opposite effect—with the higher the rate, the greater the negative impact.

Credit History

Your credit history, sometimes referred to as credit age, will have a 15% impact on your credit score. This is determined by how long you’ve had open credit accounts for. This is also why you should avoid closing credit accounts if possible, as they will only stay on your credit report for seven to ten years. So, even if you’ve paid that Visa off, keep it open to ensure that your credit age is as old as possible, as it tells potential lenders that you’ve been able to responsibly handle credit for quite some time. 

If you have multiple lines of credit, lenders will determine the average age of all lines of credit by adding together the age of each account and dividing it by the total number of accounts. If this whole thing seems like it favours older people, it’s worth noting that the longer you’ve had available credit, the longer you’ve been paying interest on it—and the more opportunities to slip up and miss a payment. 

Types of Credit

There are two main types of credit you can have, which account for 10% of your credit score. There’s revolving credit, a line of credit that opens up to you as soon as it’s paid, and installment credit which is a fixed rate lump sum you pay over time.

Revolving Credit

  • Credit cards
  • Personal lines of credit
  • Home equity lines of credit

Installment Credit

  • Auto financing
  • Student loans
  • mortgage

As with all things credit related, it’s all about balance. Having both types of credit open will help your credit score, whether that’s a credit card and a mortgage, or some other combination. Regardless of which types of credit you have, responsibly maintaining the accounts are key to keeping a good credit score.

Credit Inquiries

Also impacting your credit score by 10% are the two different types of credit inquiries. A soft inquiry will have no impact on your credit score, whereas a hard inquiry will. However, one hard inquiry itself will have a small or negligible impact, but if you go to multiple lenders and they all perform a hard inquiry, it will raise red flags. Another thing to consider is your credit history; if you’re approved for multiple loan applications, it will lead to new lines of credit which will lower your overall credit age.

While we can’t do anything to change your current credit score, the team at Autohouse Kingston will do everything within our power to ensure that we find you a loan at a rate you can afford. Feel free to contact us with any questions you might have about your credit score, or for any advice on how you can improve your score going forward!