People avoid checking their credit score because they think it’ll go down. They close old accounts thinking it helps. They pay off a loan and wonder why their score dropped. There’s a lot of misunderstanding about what affects your credit score and how much.
FICO scores, which are used in 90% of lending decisions, are built from five factors with specific weights. Knowing what matters and what doesn’t saves you from making decisions that hurt your score while trying to help it.
What actually hurts
Payment history (35% of your score). A single payment more than 30 days late can drop your score by 50 to 100 points. The more recent the late payment, the worse the impact. A late payment from last month hurts more than one from three years ago. Collections, charge-offs, and bankruptcies fall in this category too. Bankruptcy is the single most damaging event, dropping scores by 130 to 240 points.
Credit utilization (30% of your score). Using more than 30% of your available credit on any single card or across all cards hurts your score. The closer to maxed out, the worse the damage. Someone using 90% of their credit limit is taking a significant hit. The good news: utilization has no memory. Pay the balance down and the score recovers within a statement cycle or two.
Closing old accounts. This reduces your total available credit (raising your utilization ratio) and eventually reduces your average account age. Both hurt your score. That old credit card with no annual fee that you never use? Leave it open. It’s helping your score by adding to your credit history length and available credit.
Applying for lots of credit at once. Each application creates a hard inquiry. One or two inquiries barely matter. Five or six in a few months looks like you’re desperate for credit, and your score reflects that concern.
What doesn’t hurt
Checking your own credit score. This is a soft inquiry. It does not affect your score. Check it as often as you want. Credit Karma, your bank’s app, and Discover’s Credit Scorecard all use soft inquiries.
Your income, savings, or employment. Your credit score doesn’t know how much money you have. It only tracks borrowing and repayment behavior. A person making $30,000 with perfect payment history can have a higher score than someone making $300,000 who missed payments.
Debit card usage. Debit cards don’t appear on your credit report. Using a debit card doesn’t build credit and doesn’t hurt it.
Rent payments (usually). Most landlords don’t report rent to the credit bureaus. Paying rent on time typically doesn’t help your score, and not paying rent doesn’t hurt it unless the landlord sends the debt to collections. Some services like Experian Boost can add rent payment history, but this is opt-in.
Getting denied for credit. The denial itself doesn’t affect your score. The hard inquiry from the application does, but the fact that you were denied has no separate impact.
Commonly misunderstood
Paying off a loan can temporarily lower your score. Closing an installment loan (car loan, student loan) reduces your credit mix and can slightly lower your score. It seems counterintuitive because paying off debt is responsible, but the scoring model rewards having a mix of active credit types.
Carrying a credit card balance does not help your score. This is one of the most persistent myths. You do not need to carry a balance or pay interest to build credit. Pay your statement balance in full every month. The on-time payment gets reported whether you carry a balance or not.
Closing a credit card doesn’t immediately remove its history. The closed account stays on your report for up to 10 years and its payment history continues to count. But the loss of available credit limit is immediate, which can raise your utilization and hurt your score.
Being added as an authorized user helps. The primary cardholder’s account history shows up on your report. If that account has years of on-time payments and low utilization, it benefits your score.
The order of importance
If you want to improve your score, focus in this order: make every payment on time (most important), reduce credit card balances below 30% of each card’s limit (second most important), don’t close old accounts (third), limit new credit applications (fourth), and maintain a mix of credit types (least important but still counts).
Most score problems are payment history or utilization. Fix those two and the score takes care of itself.