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Ever wonder how a lender decides to grant you credit? Or why you qualify for certain loan rates or credit card offers? A big part of the answer is your credit score. This number, which typically ranges from 300 to 850, is a measure of your credit risk. Lenders, insurers, landlords and even employers may consider your credit score or credit report when evaluating whether to do business with you. Take charge of your credit! Here are five factors that affect your score and what you can do to make the impact a positive one.

1. Making Late Payments.

One of the most crucial factors to determining your credit score is your payment history. In fact, it makes up 35 percent of your FICO® score (the standard credit score rating in the U.S.). The first thing lenders want to know is whether or not you’ve paid past credit accounts on time.

What you can do: Always make your payments on time and strive to pay off the entire balance, if possible. If you have cards with high balances, aim to pay more than the minimum payment and consider making payments twice a month to lower your debt and stay on time with payments.

2. Not using credit.

Using cash is a smart financial strategy to avoid debt. But it’s also important to maintain a solid credit track record and show you can manage credit responsibly. Having little or no credit history can hurt your score.

What you can do: If you don’t currently have any form of credit, consider a secured credit card, which would use the funds in your savings account to secure the credit limit and begin the credit—building process. Paying on time each month will help establish your credit history and improve your score over time.

3. Having one type of credit account.

As with your investment portfolio, diversification is important. Credit scoring models favor borrowers who can manage different types of credit accounts (such as revolving accounts like credit cards and installment accounts like auto loans).

What you can do: While you shouldn’t open accounts you won’t use, if you only have one type of account (only credit cards, for instance), consider opening a different type of credit account (like an auto loan) when the need arises. However, be careful not to open too many accounts in a short period of time. Doing so can hurt your score, especially if you don’t have a long credit history.

4. Not checking your credit report.

According to a Federal Trade Commission study, one in four Americans identified errors on their credit reports, and 5 percent of Americans had errors that could lead to higher rates on loans or insurance.

What you can do: Visit to review free copies of your credit reports. (Note: Checking your own credit report doesn’t affect your credit score. Having too many "hard inquiries"—credit checks performed when you apply for credit—can hurt your score.) If you find errors, such as incorrectly listed late payments, notify the credit reporting company in writing about the error. In addition to your name and address, include the item you’re disputing with any supporting documents and request that the information be corrected.

5. Closing a paid-off account.

If you’ve paid off debt, it may be tempting to close the account. But if you have balances on other accounts, your credit utilization rate (the percentage of available credit you’re using) may be negatively affected.

What you can do: Aim to keep your credit utilization rate under 30 percent (i.e., the total amount of credit you’re using divided by your available credit across accounts should be less than 0.3). Also be aware that your length of credit history makes up 15 percent of your FICO score, and closing an account, particularly one you’ve had for a while, can negatively impact that.

Keep it up!

From increased credit limits and attractive loan rates to credit card perks and greater negotiating power, maintaining good credit can help you save money and pave the road to financial success. If you’re working to build or improve your credit, keep in mind that Navy Federal takes a personalized approach to assess creditworthiness that looks beyond your credit score.


This article is intended to provide general information and shouldn't be considered legal, tax or financial advice. It's always a good idea to consult a tax or financial advisor for specific information on how certain laws apply to your situation and about your individual financial situation.