What Impacts Your Credit Score?

While a credit score doesn't define you as a person, it does give lenders an idea of how risky it is to offer you credit. If you establish and maintain a high credit score, you typically have access to more desirable loan offers, saving yourself money in the long run. To increase your chances of building a good credit score, acquaint yourself with the elements of your credit history that impact this three-digit number. Several credit scores exist, but most lenders use your FICO credit score to determine your creditworthiness.

Payment History

One thing that weighs most heavily on your credit score is your payment history. When tabulating your FICO score, 35 percent of the score is based upon how well you service your debts. If you are often late on payments, your score will be damaged. The impact of each late payment is not the same, however, because a number of other factors affect this score.

Current Balances

The amount of money you owe on your credit cards or on your mortgage and other loans also has an impact on your credit score. About 30 percent of your score is determined by your current balance. Your credit utilization ratio -- which measures the amount of debt you carry relative to your credit limit -- is part of this category. If you have a high credit utilization ratio -- in other words, if your balances are close to the credit limit -- it reflect negatively on you as a borrower and hurts your credit score.

History Length

The further back your credit history dates, the better your credit score. History length accounts for 15 percent of your credit score. The inclusion of this element is intended to reward those who have maintained a positive credit history over many years by recognizing their consistently strong payment record.

Amount of New Credit

Establishing new credit, while vital to building credit history, temporarily has a negative impact on your credit score. This element makes up 10 percent of your total credit score. If you go through a period in which you open many new credit cards or take out a number of loans, your credit score probably will drop, as this may be a sign you are overextended, which is worrisome for lenders.

Type of Credit

Not all types of credit are created equal. Having an excessive amount of revolving credit, such as credit cards, can negatively impact your credit score. Having a mix of revolving credit and installment loans (such as a mortgage or car loan) helps your credit score the most, because it shows lenders you can manage different types of credit. This element makes up 10 percent of your total credit score.