The Top Factors That Impact Your Credit Score and How to Improve Them

Your credit score plays a crucial role in your financial life—affecting everything from loan approvals to interest rates and even job opportunities. Yet, many people don’t fully understand what influences this all-important number or how to take control of it. Understanding the top factors that impact your credit score and how to improve them is essential for building and maintaining strong financial health. While a poor credit score can make achieving financial freedom more challenging, a high credit score unlocks additional opportunities.

Whether you’re building credit from scratch or looking to recover from past missteps, understanding these components is the first step toward a stronger financial future. This article will discuss the elements most affecting your credit score and offer doable advice to help you improve it.

Payment History

Payment history is the most important component of a credit score. It makes up more than 35% of the FICO score and has the most significant impact.

The Value of Knowing Your Payroll History

Lenders think that past behavior is the most consistent indicator of future behavior. You are less of a threat if you have a record of paying your debts on time. However, depending on your present score, even one late payment could snowball throughout your financial scene, dragging your score by 90–110 points.

Your credit score may be permanently affected by any unfavorable information on your credit report, including late payments, charge-offs, foreclosure, collection, or bankruptcy. Thus, a perfect or almost perfect payment record is vital.

How to Improve:

Thanks to our automated system, your payments will always be processed on time. Schedule automatic drafts for the minimum amount due on loans and credit cards.

1. With most credit card apps and banks, you may set up a personalized alert to remind you to pay your bill. You can receive program alerts several days before your payment due dates.
2. Carefully review your monthly statements to ensure that there are no errors or unusual charges. Report unauthorized charges immediately to help prevent problems from escalating.
3. If you anticipate having trouble completing a payment and will thus miss a due date, notify your lender in advance. Many universities offer alternatives to or hardship programs for interim relief.
4. Aligning your payment due dates with your paydays can help you better manage your finances. You can also obtain a different due date from several creditors. 

Read related blog: Preparing for Big Purchases: Why Credit Score Monitoring Is Essential

Credit Utilization

The utilization of credit accounts for over 30% of your credit score is the second most crucial component. This is the current utilization rate of your available revolving credit, which includes all of your credit cards and lines of credit.

The Significance of Credit Use

If you frequently use credit cards, it suggests that you often rely on borrowing money, which may cause lenders to worry about your financial stability. If you max out your cards, your credit score can take a significant hit even with timely payments. To reap the full benefits, doctors recommend keeping your dosage below 10%; otherwise, a dosage of less than 30% is ideal.

How to Improve:

1. Pay off bills frequently to avoid waiting until the end of the payment cycle. The ‘credit card float’ refers to paying off a small amount over a month to keep your reported balance low.
2. Contact your creditors and request a limit increase if your income and credit history are excellent. The utilization ratio drops precipitously as a result; furthermore, if you do not minimize spending,
3. A large amount can adversely affect your credit score and result in fines, such as over-limit fees or penalty APRS.
4. Split your transactions among many accounts to avoid using up all of your credit card limits. 
5. Even if your spending remains constant, your utilization ratio could worsen if you close a card, as it reduces your total available credit. Careful control of your credit usage could be one of the quickest ways to improve your score.

Length of Credit History

Another critical but sometimes overlooked factor is the length of your credit history, which accounts for approximately 15% of your score.

Value of a Credit History

Lenders are more confident in lending to borrowers when a credit record is long-term and well-maintained. For those in good standing, especially, the more active your accounts are, the better.

1. The duration of your open accounts is one of three factors that make up your credit history.
2. The average age of all your accounts.
3. A more extended credit history is something you can work toward.
4. You should keep your oldest credit cards active unless substantial fees are associated with them. Closing them can lower your credit score and the amount of credit you have available.
5. Get the most out of dormant accounts. Occasionally, make small, frequent purchases with out-of-date cards to keep the issuer from closing the account due to inactivity.
6. Time is on your side. Your credit score can be improved with time and careful management, even if you have never used credit. Building a solid credit history is a process, not a race.

Credit Mix

The variety of your accounts accounts for around 10% of your credit score.

What is the Significance of Credit Mix?

Lenders want applicants who can effectively manage various credit types, including installment loans (personal loans, mortgages, and vehicle loans) and revolving credit (such as credit cards). Your varied credit history demonstrates that you can effectively manage multiple financial responsibilities.

How to Improve:

1. You should only consider adding an installment loan, such as a credit-builder or a small personal loan, to your credit report if you require the additional funds.
2. Do not take out a loan to diversify your portfolio. Only look for credit choices that work with your budget.
3. Be cautious while adding additional accounts; pay them on time and maintain minimal balances.
4. Your creditworthiness is enhanced by a good credit mix, which adds extra points to your score.

Read related blog: The Benefits of Credit Score Monitoring and How It Keeps You Informed

New Credit Inquiries

Finally, new queries about your credit account for about 10% of your FICO score.

What Makes New Credit Inquiries Important?

Each credit application records a ‘hard inquiry’ on your credit report. While it’s normal to have some queries, lenders may view an excessive number of inquiries within a short timeframe as an indication of desperate attempts to obtain loans. Even as the effect wears off over time, answering too many difficult questions at once can negatively impact you.

How to Improve:

1. Whenever you need more credit, apply for more. Using it regularly might quickly add up and bring your score down.
2. You may be pre-qualified for a loan with several different lenders using a ‘soft pull’ that won’t hurt your credit score—shop around guilt-free by taking advantage of these sales.
3. Applying for credit at least six months apart can mitigate the overall effect.
4. Your credit score will be less affected if you apply for a mortgage, car loan, or student loan, all within a short period (about 14–45 days).
5. Properly managing your credit searches can reduce unwelcome hits to your score and keep funding opportunities open.

Monitor Your Credit Regularly

Your greatest asset in the battle for better credit is knowledge. By monitoring frequently, you may catch mistakes early and fix them before they cause harm. Learn about fraud and identity theft before they escalate. Discover how your actions impact your score by tracking your progress. Beem simplifies credit monitoring by offering a seamless user experience with powerful features. It tracks your score, sends real-time alerts, and breaks down your credit factors for easy understanding. With Beem, you’re not just watching your score. You’re learning what drives it. Whether rebuilding your credit or aiming to keep it strong, Beem equips you with the tools to succeed. 

Tips for Efficiently Tracking

1. Stay ahead of problems using one of the many free or paid applications that provide real-time warnings when your credit file is updated.
2. Please investigate immediately any unexplained requests for your credit, the creation of new accounts without your knowledge, or the appearance of an unfamiliar address on your record.
3. Proactive monitoring does more than keep your score up; it gives you the tools to make smart financial decisions.

Read related blog: How to Lower Your Debt-to-Income Ratio and Boost Your Credit Score

Final Thoughts

Think of your credit score as a living reflection of your spending habits; every action you take impacts it. With knowledge of and active management of five key elements—payment history, credit use, length of credit history, credit mix, and new inquiries—you can progressively improve your credit situation.

Maintaining a decent credit score calls for consistency. Little, smart decisions, such as paying bills on time, keeping balances low, and tracking costs, add significant financial benefits daily. Raising your credit score is a logical and reasonable target if you are driven and proactive. Your credit record goes beyond mere statistics. Supporting your goals, aspirations, and future requires a strong financial foundation.

Start tracking your score, understanding the factors behind it, and making informed decisions. Download the Beem app today and take the first step toward mastering your financial future.