These 3 Factors Can Make or Break Your Credit Score

By Wendy Connick Markets

There are a lot of different factors that make your credit score, but three in particular have a huge impact. Both FICO (a credit score system developed by Fair Isaac Company) and VantageScore (a newer scoring model developed by the three major credit bureaus in 2006) give these factors significant weight when determining your score. Let's go over what these factors are and how you can control them in order to build an impressive credit score.

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1. Payment history

Payment history is the single biggest factor in your FICO score; in fact, it accounts for 35% of this score. VantageScore doesn't say what percentage of your total score this factor accounts for, but it does indicate that payment history is the only "extremely influential" factor in calculating a score. Credit bureaus look at the payment history of all kinds of accounts, including credit cards and loans. Negative payment history items such as late payments will lower your credit score, while a history of on-time payments and overall good behavior will gradually improve it.

The most punitive payment history items are bankruptcies and foreclosures, but even a single late payment can have an amazingly large impact on your credit score. Equifax says that someone with a FICO score of 780 could see a 90- to 110-point drop in their credit score from a single 30-day-late payment. Late payments typically remain on your credit history for seven years, but the good news is that the older they get, the less impact they have on your score.

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2. Credit utilization

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It's not how much debt you have that matters; it's the proportion of debt to available credit. In other words, maxing out all your credit cards will have a major negative effect on your credit score. The higher the percentage of your available credit you're using, the more overextended you look to credit bureaus. Your credit utilization accounts for 30% of your FICO score and is a "highly influential" factor in your VantageScore.

Experts typically recommend keeping your credit utilization ratio under 30%, although Credit Karma takes it a bit further and recommends a rate between 1% and 20%. Having a 0% credit utilization ratio is actually not quite as good for your credit score as having a small utilization percentage, because lenders like to see that you are using some credit -- and using it responsibly. If you rarely or never use credit, consider keeping your accounts active by using credit cards for small purchases and then paying them off immediately so you don't get hit with interest charges. This will boost your utilization ratio above 0% and give your credit score a slight boost.

3. Inaccurate information

The only thing worse than having your financial blunders drag down your credit score is having someone else's financial blunders do so. It's not unheard-of for bits of one person's credit history to show up on someone else's report, and if the wrongly attributed items include late payments or a bankruptcy, they can seriously damage your credit score. Even if your credit report only includes your own accounts, inaccuracies can still creep in. A lender might fail to report that you've paid off or closed an account, for instance.

Consumers can get free credit reports annually from, and it's wise to take advantage of this opportunity every year to check for inconsistencies. If you spot an entry in your credit report that doesn't ring a bell, get in touch with the credit bureaus right away to dispute it. The FTC provides guidelines for filing a credit dispute, including a sample dispute letter.

Raising your credit score

Checking your credit score regularly is the single most important thing you can do to keep that score high. If your score suddenly drops like a stone, that's a sign you'd better check your credit report immediately and see what happened. The faster you can respond to inaccuracies and other issues, the faster you can get your score back where it belongs. It's also wise to claim your free annual credit report every year even if nothing unusual has happened to your score. That will give you a chance to catch any issues early, before your score has a chance to take a nosedive -- and it also gives you time to fix errors before you need that credit for something important.

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