Inflation is bad enough, but another factor is straining the household budgets of Americans: falling credit scores.
A spring 2026 report from FICO shows that the average credit score in the U.S. has been declining since early 2023. The percentage of Americans with credit scores below 600 has risen steadily in recent years.
Falling credit scores can cost consumers money and opportunities. With low credit scores affecting a growing number of Americans, it’s especially important to understand how credit scores work.
Knowing what affects your credit score allows you to make choices that improve your score. This can pay off by saving you money on interest as well as giving you access to more opportunities.
What are the 5 factors that affect a credit score?
When you use credit, information is collected on credit reports. These reports show how many credit accounts you have, how long you’ve had them, what your current balance is, and whether payments have been on time or late.
There are different types of credit scores, but the most common is the basic FICO score. These are three-digit numbers that range from 300 to 850. They rate how well you’ve used credit in the past to give lenders a general idea of how risky it would be to lend to you. While many items go into credit scores, the information is sorted into five categories:
- Payment history
- Amounts owed
- Length of credit history
- New credit
- Credit mix
When you realize what these five credit score factors include, it enables you to look for chances to improve your score.
1. Payment history (35%) is the biggest factor affecting credit scores
What factor has the biggest impact on a credit score? That would be payment history, which determines just over a third of your score. Payment history can include various types of credit accounts such as credit cards, personal loans, mortgages and student loans.
Consistently making payments on time can help you build a positive credit history. On the other hand, missed payments are likely to hurt your credit score. How badly missed payments impact your credit score depends on how much credit history you have, how many payments you’ve missed and how long overdue those payments are.
There are reports that a single missed payment can drop your credit score by 70 points or more if you don’t have much positive payment history to offset it. In any case, every payment matters. Also, missed payments have a lasting impact. Payments that are 30 days or more overdue stay on your credit reports for seven years.
Since payment history matters so much, organize your payments so you can pay on time each month, using automated payments where appropriate.
2. Credit utilization ratio (30%)
Credit utilization is the percentage of your available credit limits that you’re currently using. So, if the credit limits on your credit cards total $10,000 and you have a total of $2,500 in balances, your credit utilization would be 25%.
The closer you are to maxing out your credit cards, the more it looks as though your finances are stretched. A high credit utilization ratio is bad for your credit score. So, try to keep your balances low. This has the added benefit of costing you less in interest charges.
There’s no exact number that represents a good or bad credit utilization ratio. According to a CardRatings analysis of data from the Federal Reserve Bank of New York, U.S. consumer credit utilization ratios have averaged 29% over the past 20 years (through 2025). So, if you keep yours below that number, you’ll have a better-than-average credit utilization. The closer it is to 0%, the better it will be for your credit score.
➤ FREE TOOL:Credit utilization calculator
3. Length of credit history (15%)
FICO looks at how long you’ve been using credit in a few different ways, including the age of your oldest credit account, the age of your newest credit account and the average age of all your accounts.
Having a long track record of maintaining credit accounts is good for your credit score. That’s why it isn’t necessarily a good thing to close old accounts even if you aren’t using them, unless there are fees involved in keeping them open.
4. Credit mix (10%)
There are two major types of credit: revolving credit and installment credit:
- Revolving accounts are those that give you a line of credit you can borrow from and pay back repeatedly over time. Credit cards and home equity lines of credit are examples of revolving credit.
- Installment accounts are those where you borrow all at once, and then pay back the loan on a fixed schedule. Auto loans, personal loans, mortgages and student loans are examples of installment debt.
Having experience with both types of credit is good for your credit score because it shows you can handle both types of borrowing. However, since this only affects 10% of your score, it isn’t generally considered worth opening a certain type of account just to help your credit score. Opening new accounts can negatively impact your credit, which could offset any benefit.
➤ LEARN MORE:What is a credit mix?
5. New credit (10%)
Lenders are concerned if you take on a lot of new credit all at once. So, opening too many new accounts can damage your credit score. Even applying for new credit can have a negative effect.
Not only can adding too many new accounts hurt your credit score directly, but it also lowers the average age of your credit accounts. That counts against you in the “length of credit history” category, discussed above. Choose carefully and pick your spots when opening new accounts. If you want to add new accounts, try to do it gradually over time.
What does not affect your credit score?
Credit scores focus on how you’ve used credit in the past and how you’re using it now. They don’t take into account other aspects of your personal or financial situation.
For example, here are some factors that do NOT impact your credit score:
- Age
- Income
- Occupation
- Employment history
- Address
- Race or religion
- Sex
- Marital status
- Use of prepaid credit cards
Some of the above may show up on your credit reports. That means lenders may consider some of these factors when reviewing your application. However, they are not used in calculating your credit score.
How can a poor credit score cost you?
Now you know how your credit score is determined, you might wonder how important all this is. How can your credit score (and indirectly, those five factors affecting your credit score) make a difference to you?
Here are two important ways your credit score impacts your finances:
- Credit score can affect your access to credit. A credit score could make the difference in your ability to be approved for a credit card or whether you can get a mortgage or other type of loan. Having the financial flexibility to borrow when you need to can have a long-range effect on your lifestyle.
- Credit score impacts your cost of credit. Lenders tend to charge people with poor credit scores more to make up for the higher risk of lending to them. CardRatings found that there’s an average gap of 8.24% between the lowest and highest interest rates credit card companies offer. Your credit score can have a lot to do with which side of that gap you end up on. Loan rates are affected as well. FICO found that the difference between a 720 and a 620 credit score could cost you an extra $34,000 in interest on a 30-year, $300,000 mortgage.
In short, credit scores don’t just measure your history of using credit. They can also play a role in determining your financial future.
Actionable steps to boost your credit score
Now you know what affects your credit score and how much it matters financially, you might be motivated to do something about it.
Consider each of the credit score factors:
- Payment history: your record of making payments on time
- Credit utilization: how much credit you’re currently using
- Length of credit history: the age of your credit accounts
- Credit mix: whether you have experience with both revolving and installment debt
- New credit: how many new credit accounts you’ve opened and applications you’ve made recently
Focus primarily on the first two. Together, they represent 65% of your credit score. They also give you the best opportunities to improve your score:
- You can help your payment history by bringing any past-due accounts up to date, and putting in systems to make all your payments on time using automated payments, calendar reminders and whatever else works for you.
- You can help credit utilization by making a sustained effort to reduce the balances you’re carrying on credit cards and other lines of credit.
This isn’t about the bragging rights of having a good credit score. It’s about the financial rewards that come with improving your score. You’ll find those rewards can be well worth the effort.
