How Does Your Credit Score Affect Your Debt?

A Credit score is a number that summarizes your credit risk and helps lenders decide whether to loan you money or approve your application. The credit scoring model used may vary, but most consider your payment history and amounts owed compared to your credit limits.


The length of your credit history and the types of accounts you have also can influence your score. However, certain factors aren’t considered, such as sex, age or race.

Payment history

Payment history is the single biggest factor that affects your credit score. It accounts for 35% of your score and includes how often you pay on time, whether you have missed payments in the past and how recently those late payments occurred. Late payments that are more than 30 days old typically impact your credit negatively, and the longer they are overdue, the more damage they can do.

Payment behavior influences your score across all types of credit, including credit card accounts, auto loans and personal loans, retail credit and mortgages. It also includes any public records or collections items on your credit report, such as a bankruptcy or judgments.

A positive payment history is an indicator that you are a responsible borrower and may be able to repay the debt. It also indicates that you are less likely to take on more debt in the future, which can help you build up a higher credit score and qualify for better loan terms and lower interest rates.

Other factors that influence your credit score include how much of your available credit you’re using, which is called your credit utilization ratio; the length of your credit history; and the variety of accounts you have (credit cards, auto loans, mortgages). These are all weighed differently when determining your score, but a solid payment history remains the key to a high credit score.

Length of credit history

Your credit history contains a record of your past debt obligations, including how much you owe and the status of each account. The length of your credit history is one of the major factors used by credit scoring models. The information included in your credit report varies by credit reporting company, but generally includes payment histories, the average age of all active accounts, the number of open and closed accounts, and the type of credit accounts you have (such as revolving or installment loans). A history of on-time payments will help boost your scores, while missing payments, having debt sent to collections or filing for bankruptcy can hurt them. Credit usage, which is the percentage of your credit limit you use on revolving accounts like credit cards, also impacts your scores.

Though it makes up only 15% of the FICO score and a slightly lower percentage in VantageScore’s 3.0 model, the length of your credit history plays a significant role when lenders and credit scoring companies review your application for loans and credit cards. A long track record of responsible credit behavior suggests that you will likely maintain similar habits in the future, which helps lenders and credit card issuers assess your creditworthiness. Credit scoring models may have different weightings for this factor, but a credit history of 15 or 20 years is generally viewed favorably by lenders and credit score systems.

Types of credit accounts

Credit scores are used by lenders to determine how likely you are to pay back debt in a timely manner. They also influence the amount of credit you have available and the terms of any loan you may receive. While each lender has its own unique credit scoring model, most consider similar factors when evaluating applicants for loans and other financial products.

One of these factors is the type of credit you have, referred to as your credit mix. This includes revolving credit, such as credit cards, and installment accounts, like mortgages, auto loans and student or personal loans. Having a mix of these types of credit can help raise your score, as it shows that you are capable of handling different types of debt.

New credit accounts also play a role in your score, with the credit scoring company FICO considering how recently you opened or applied for credit. This can bring down your score if you open too many accounts in a short period of time, as credit scoring models may view this as a sign of potential financial stress.

It is important to keep in mind, however, that the most significant factor in your credit scores is payment history. Even if you don’t have the type of credit you would prefer to have, staying on top of all your payments can still help your scores.

New credit accounts

When you apply for new credit, a lender will typically check your credit reports before approving or denying your application. These checks are referred to as “inquiries” and can impact your credit score. Depending on your situation and how many other inquiries are currently on your report, these may cause your scores to drop temporarily. However, if you are diligent about making consistent on-time payments on your new account, the impact from the new credit should turn into another long-term positive for your credit history.

Another reason your scores may drop with a new account is because you have taken on new debt and it is not yet clear how well you will manage this debt. This is a factor that is considered when calculating your total amount of money owed (total balances) compared to the credit limit on your accounts, which is known as your utilization ratio. Generally speaking, high utilization rates tend to lower credit scores, while low utilization rates tend to increase them.

In addition, if the new account is a different type of credit than your existing cards, this can help diversify your credit mix, which makes up 10 percent of your credit score. If your account is open and in good standing, this can also help your credit scores over time by lowering your overall revolving credit utilization ratio.