Establishing and building credit are very important parts of one’s financial well-being. A solid credit history, among other things, is an important factor that is usually considered when a consumer is applying to borrow money. Credit scores and your credit history can impact your ability to borrow money in a number of ways, including when buying a car, opening a line of credit, buying a home, and so on. What exactly impacts your credit? According to credit bureau Experian, there are 5 key factors to consider:

  • Payment history:  35% impact on total score. Your payment history includes both secured and unsecured accounts, and may include, but is not limited to, a mortgage or car loan (secured - with collateral), personal loans, credit cards, utility bills, or medical bills (unsecured – nothing for the creditor to take possession of if you, the borrower, don’t make payments). Late or missed payments can negatively impact this portion of your credit score. If you’re delinquent on a payment by more than 30 days, this will impact your credit.
  • Amounts owed vs credit limits: 30% impact on total score. Part of your credit score is based on how much you currently owe in comparison to your total credit limits. As a rule of thumb, using 30% or less of your available credit is generally recommended. For instance, if your credit limits total $15,000, an ideal credit utilization would be $4,500 or less. Your credit score can potentially increase as you pay down debt and lower your utilization rate.
  • Length of credit history: 15% impact on total score. Creditors will assess how long you have had accounts open and also consider the average age of your lines of credit. It’s generally better to have a history with accounts that are open longer. This can negatively impact younger potential borrowers who have a shorter credit history, but it can improve over time as the accounts build history.
  • Types of credit: 10% impact on total score. Your credit score is impacted not just by balances, but also by the types of credit that you have. Scoring takes into consideration whether you have different types of credit or just one type, such as a single credit card. Generally, it’s good to diversify and have different types of credit lines that help build your score, but be sure not to extend yourself beyond your financial means. Please speak to a trusted, reputable financial professional if you have questions about types of credit.
  • Inquiries: 10% impact on total score. There are two types of credit inquiries – “hard” and “soft”.  An example of a “hard” inquiry would be when a potential creditor pulls your credit history from a credit bureau, including the three most recognized ones - Experian, Equifax, and TransUnion. These “hard” inquiries will be reflected in your credit score. When someone checks their own credit history or a creditor sends someone a pre-screened offer, those are examples of a “soft” inquiry.  These “soft” inquiries do not affect your credit in the same manner. The older that “hard” inquiries are, the less of an impact this will have on your score over time. If you recently applied for credit, it’s always good to check your score and make sure you don’t have too many other inquiries in the same span of time.  For details about “hard” and “soft” inquiries, please refer to the aforementioned credit bureaus’ websites or other reputable online resources.

There are 5 tiers of creditworthiness, with scores ranging from 300-850 based on the combination of the above factors. Learn more about what each credit tier means by checking out Experian’s guide at /speedbump? note that creditworthiness can change over time, based on consumer behavior. For ways to improve your score, visit: /speedbump?

Also, remember that consumers are entitled to 1 free copy of their credit report per year from each of the 3 major credit bureaus. Click here to request yours today!

For more information about the three major credit bureaus – Experian, Equifax and TransUnion, please visit their websites.  Rhinebeck Bank.  Member FDIC. 

Amanda Diamond

Retail/Marketing Coordinator