Factors That Do and Do Not Affect Your Credit Score 

By Donna Herron, Fort Bliss Legal Assistance Office

There are five factors affecting your credit score that you should be aware of if you are trying to improve your score.

Payment history is the most important component of your credit score because it evaluates whether lenders can trust you to repay their money on time. This component of your score considers: a) whether you pay your bills on time for each account on your credit report, b) any late payments and their time of delinquency (30 days, 60, 90+), c) any accounts forwarded to collections, and d) any charge-offs (an uncollectible debt written off by the collection firm), judgments, foreclosures, or bankruptcies against you.

The next most important element of your credit score is the amount you owe. This considers not only the total amount owed, but also how much of your available credit you have used, and the total owed on specific types of accounts such as mortgages or auto loans. In both areas, less is better. Owing a little bit can be better than owing nothing because lenders want to see you are responsible with your finances and pay back your debts.

Your credit score will also account for time you have used credit. A long history is helpful, but a short history is perfectly fine if you make your payments on time and do not owe too much.

Your credit score will be helped by new account openings but be cautious with how many you open over a short period of time. Lenders will assume you are a greater credit risk if you open several accounts in a short time because it implies cash flow problems. To build your credit, open up several lines over time.

A mix of different types of credit on your credit report will have a positive impact on your credit score. The overall impact is small, so do not be concerned with having one of each type or opening new accounts just to increase your diversity, but keep in mind that having retail store accounts as well as credit cards could increase your score.

There are several factors you may think would affect your credit score, but they do not. For instance, the credit reporting agencies do not use your W-2 earnings to calculate your credit score. Be careful not to confuse CRAs with lenders; lenders may look at your income as part of their overall evaluation of your creditworthiness, but income is not used in determining your credit score. A portfolio with investment accounts and real estate holdings may impress a lender, but it is not factored into your credit score. In fact, credit bureaus do not have access to information about your personal assets. However, do not ignore your portfolio entirely because lenders often consider this information.

Although there is an obvious correlation between your credit score and interest rates on future loans, you credit score does not reflect the interest rates on past loans. Essentially, your interest rates affect you moving forward with a loan, but not looking backward.

Many consumers struggling with their finances suffer an irrational fear that credit counseling will negatively impact their credit score. This is not true. Working with credit counselors can provide you the tools to repair and protect your credit score.

Another myth of credit scoring is that checking your score will count against your score. Once again, this is simply not true. Excessive inquiries by lenders or creditors into your account could negatively affect your score because it shows you are seeking additional credit. But your score will not be affected by your own requests to monitor your credit.

Getting married or divorced obviously impacts your finances, but it will not affect your credit score in any way. Once you are married, however, make sure any joint accounts are taken care of, because both parties will be equally liable for the entire debt.

Various surveys and case studies show certain demographics generally hold higher credit scores. Credit bureaus do not use these statistics in determining your credit score. In fact, fair lending laws prohibit the use of this data in calculating credit scores or making lending decisions.

If you have more questions about this topic, please schedule an appointment to speak with an attorney at the Fort Bliss Legal Assistance Office by either calling (915) 568-7141 during office hours or emailing usarmy.bliss.hqda-otjag.mesg.bliss-legal-assistance-office@mail.mil anytime.