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The Five Factors of Credit Scoring

five-factors-of-credit-scoringCredit scores are determined by multiple factors, which each have their own values and when added together give you a credit rating, or score.  Each factor is awarded points and combined they make up your credit score.  Some factors have a greater impact on your score and can affect your score in an either more positive or negative way.  While 850 is considered a perfect score, the majority most lenders will offer their best interest rates to those individuals who have scores over 720.

The Five Factors are as follows:PAYMENT HISTORY – 35% IMPACT

  • The number one factor that has the biggest impact on your credit score is your payment history. Paying your debt each month on time and in full significantly affects your credit score in the most positive way.
  • Conversely, late payments, judgments and charge-offs all have a negative impact and will just as easily drop your credit score just as significantly.
  • It is important to know that failing to make a payment on a higher credit line or will actually have a greater impact than missing a lower payment, however if you are looking to repair your credit, it is critical that you make all of your payments on time.
  • Creditors look at all delinquencies that appear on your credit bureau within the last two years and those delinquencies carry more weight and have greater impact than those that are beyond the two year mark.


  • This factor grades the relationship between the available credit and the amount of outstanding balances
  • In a perfect world, the consumer pays off any and all credit balances each and every month.  However, in the real world, creditors are looking to see how well the consumer is able to keep their credit balances at a zero balance, and definitely want to see it below 30% of the available credit limit.  This is especially prudent when looking to purchase a home.


  •  This factors the length of time the consumer has had a particular line of credit.
  • A seasoned borrower will inevitably be stronger here


  • The types of credit you have does matter.  Having a variety such as a combination of auto loans, credit cards and mortgages will have a more positive impact than a concentration of debt from credit cards only


  • Every time a third party looks at your credit score, this is called an inquiry.  The number of inquiries a consumer has within a six month period plays a factor in how your credit is scored.  What matters most is whether the inquiry is a “hard” or “soft.”
  • A soft inquiry would be one in which a company checks your credit report as part of a background check, or when a company wants to offer you a pre-approved credit card, or even when you check your own credit.  A soft inquiry will not adversely affect your credit.  NOTE:  Running a credit report on yourself is considered a soft inquiry and will have no adverse effect on your credit score.
  • A hard inquiry is when a financial institution pulls your credit so that they can make a lending decision to either approve or not approve you for a line of credit, such as a mortgage, auto loan, credit card etc.  Each hard inquiry can add anywhere from 2 – 25 points to a credit score.  NOTE: the maximum number of inquiries that will affect your score is ten.
  • In other words, 15 or more inquiries within a six-month period will have no further impact on the borrower’s credit score than would 10.

There is no human element involved when calculating a credit score.  It is not subjective.  It is a simply a computerized calculation based on the current day’s credit profile, which is made up of these five factors.