What's the Most Important Factor in Your Credit Score?

by Maurie Backman | Oct. 5, 2019

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Hint: It's something you have the ability to control. 

The higher your credit score, the easier it is to get approved for a credit card, mortgage, auto loan, or any sort of financing you need. But your credit score isn't just a random number; rather, it's based on your financial behavior over the years. And although there are multiple factors that go into establishing that score, the one that carries the most weight is your payment history.

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How credit scores are calculated

For the purposes of this discussion, when we talk about credit scores, we're referring to scores based on the FICO scoring model. There are three separate credit bureaus that use this model to determine your score: Equifax, Experian, and TransUnion. Because the information gathered by each bureau may differ slightly from what another bureau has on file, it's possible (and in fact common) to have three different credit scores, although they usually won't vary tremendously.

FICO® Scores can range from a low of 300 to a high of 850. A score of 300 is downright awful, while 850 is considered perfect (and, frankly, a bit hard to come by). 

There are five key components that go into a credit score, each of which carries a different amount of weight:

  1. Payment history (35%): This is a measure of how timely you are in paying your bills. 
  2. Credit utilization ratio (30%): This is the percentage of available credit you're using at once, and it should be kept at 30% or below.
  3. Length of credit history (15%): This speaks to the amount of time you've held your credit accounts. 
  4. New credit accounts (10%): This refers to the number of accounts you open at once; opening too many indicates you may be financially reckless or too reliant on borrowing.
  5. Credit mix (10%): This represents the variety of accounts you have open. 

As you can see, your payment history carries more weight than any other individual component of your credit score. Paying your bills on time will help with this aspect of your score, while late payments can drag your score down. In fact, a single payment that's 30 days late can cause a 90- to 110-point drop in your credit score, even if that's never happened to you before. 

The solution? Don't be late paying your bills. You can avoid being tardy by either setting up automatic payments, or setting calendar reminders that alert you when various bills are due. Keep in mind that if you have a credit card balance you can't pay in full, you can submit the minimum amount due and still be considered on time with your payment. 

If you are late making a payment due to negligence (as opposed to a lack of funds), contact the creditor in question and ask for leniency. Offer to make your payment at once, and if you do, that biller may not report your lateness to the credit bureaus. Also, you generally need to be a full 30 days late with a payment to be reported as delinquent, so if you're only two weeks late on a bill and correct that mistake right away, your credit score shouldn't take a hit. 

Finally, make sure to keep your bills at a manageable level. Don't take on recurring expenses you can't swing financially, and aim to not charge more on a credit card than you can pay off by the time your bill comes due. If you're forced to use your credit card for emergencies or other larger expenses, be sure you have enough cash available to make your minimum payment and avoid being late. 

Don't let your credit score suffer

Being late even once on a bill payment can hurt your credit score substantially, and being late consistently can drag it into truly unfavorable territory. If you want the option to borrow money affordably, don't let that happen. Instead, take steps to ensure that you're always able to pay your bills on time.

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