What Causes a High and Low Credit Score?

The average credit score in 2021 sat at a respectable 714 points. Despite upheavals and downturns, many Americans improved their overall credit scores and kept up with building credit.

Not everyone understands the factors that go into a credit score, though. What causes a good credit score? What problems give you a low credit score the fastest?

If you’ve ever tried to get a loan, you know the importance of a credit score. We’ll show you what will improve or drag down any credit score.

What Goes Into a High or Low Credit Score?

A credit score consists of five key factors. Some have a higher impact on your credit score than others.

Each of these factors has specific thresholds at which it improves. Some financial advisors and other lending professionals use services like Credit Assure to look at ways you could start building credit.

On-Time Payments

Keeping your bills paid on time plays the largest part in a high credit score. More than a third of your FICO score comes from avoiding letting an account go more than 30 days late.

When someone lends you money, they want to be sure that money will get paid back on time. Consistent payment history serves as proof that you’ll stay a good borrower.

How Much You Owe

Of course, even if you pay all your bills on time, no one’s going to want to lend to you if you’re significantly underwater. If you use more than 30% of your available credit, your credit score will take a hit.

While 30% isn’t the only point at which utilization affects your score, it’s the most important one. Higher amounts of used credit will give you a low credit score, and less than 10% will give you an even better one.

Length of History

The length of your credit history makes up 15% of your overall credit score. New borrowers will have a lower score than those whose accounts have an average age of more than seven years. Keeping the same accounts for a long time paints a picture of a stable borrower.

Types of Accounts

The more diverse your accounts are, the higher your credit score will go. This accounts for a mere 10% of your score, but don’t underestimate it. Your score will indeed go up if you have a home loan, car loan, student loan, and credit card instead of four credit cards.

Recent Movements

Did you request a credit card from a new bank last week? Did you go apartment hunting and have your credit score requested? This has a small negative impact on your score.

On their own, credit inquiries and brand new accounts don’t cause a low credit score. If you’re right at a threshold, though, it might be a good idea to wait for a little while before taking out that home loan.

Borrow Responsibly and Know Your Score

Whether you have a high or low credit score, you should make sure to know where your score is and what’s affecting it at the moment. This will make it easier for you to raise a low score or use a high score effectively.

Thinking about your next personal finance move? Check out our business and shopping sections and take a look at some of the articles.