The 5 Determining Factors in Your Credit Score

Jan 20 2020

This is part of our ongoing series on everything to know about homebuying.

Ready to buy a house? A good credit score can make your home shopping experience a lot easier. A high score, for example, may help you qualify for more loan options with lower interest rates.

But the science behind credit scores can be a little complicated. To help you (and ourselves) understand it, we look at it from a three-tiered perspective. There are the credit agencies, your credit reports, and your FICO score.

FICO (pronounced “Fie-co”) is a consumer data company whose scoring model calculates numbers between 300 and 850. Your FICO score is a number that sums up the estimated health of your credit history.

When you take out new lines of credit and make or miss payments, lenders may give that information to any, all or none of the three bureaus: Experian, TransUnion, and Equifax. These agencies collect your history into a credit report. Since lenders aren’t required to inform all three agencies, your credit report may vary between them, and the FICO score calculated by each may be slightly different.

(Keep in mind that these reports can have errors, as we explain in our post, “Seeing Conflicting Credit Scores?“)

To determine your credit score, FICO uses five factors, including the age and diversity of your lines of credit (debts). But some have more significance than others. Looking at your score like a percentage, some factors have about 10% importance (out of 100%), while another has 35%.

Here is a breakdown of the five factors in your credit score and how much each matters:

  1. Payment history – 35%

This measures how consistently you pay your debts on time. Since this takes up the largest percentage of your credit report, making timely payments has the biggest impact on your credit score (whether it be positive or negative).

  1. Amounts owed – 30%

You can’t build a credit history without taking out any lines of credit. However, having a lot of debt can be a red flag for lenders. Some are wary of high credit card balances, for example, or a large chunk of your income going to pay off loans. In general, it’s a good idea to keep your credit card balances at 30% or less of your credit limit.

  1. Length of credit history -15%

The age of your credit history also matters. The older your credit lines are, the easier it is for lenders to see proof that you’re responsible at managing debt. Keeping older accounts open can help boost your score, even if you aren’t actively using the credit line. Closing old, paid-off accounts, however, can lower your credit score.

  1. New credit -10%

Taking out a bunch of loans in a short time period can get a lender’s attention, so it’s best to avoid opening new lines of credit while shopping for a house. Not only can it decrease your credit score, but it may also impact the mortgage amount you qualify for. Lenders, after all, like to see a reasonable debt-to-income ratio. (What is that? NerdWallet has a great explainer on DTI here.)

  1. Credit mix – 10%

Lenders like to see diverse lines of credit. These can include student loans, car payments, and credit cards. Be careful though, as payday loans or title loans can negatively impact your score.


Hearing about interest rates but not sure how they affect you? We explain what interest rates are and why they matter.

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