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The credit score is a very important metric when it comes to determining the financial health of an individual, and it is always used to approve a new loan, and once approved, it can determine the interest rate one can pay.

It is vital to understand what determines your credit score because it is important for one’s financial health. Unfortunately, there are several credit scores and report misconceptions and myths that can be confusing. Here is what will determine your credit score:

Factors that determine the credit score

The first thing that determines your credit score is payment history. If you pay your credit on time, that can be favorable for your credit score. Under the FICO credit score, payment history makes around 35%. If you make a late payment, that could take up to 7 years to be scrapped off your credit report.

Another factor affecting your credit score is credit balance, which accounts for around 30% of the score. It is important to keep the credit line and card balance low, and it is recommended to use around 20% to 30% of the credit to get a good score.

Similarly, if your credit accounts are managed well, then you will be a responsible borrower, and the average age for the credit accounts contributes around 15% of your score. New accounts will lower the average age of credit accounts, but one that you have held for long will help the account age.

With a long credit history and good repayment record, a mix of credit accounts will improve your credit score.

What doesn’t determine a credit score?

Bank accounts like overdrafts, savings accounts, or check cannot affect your credit score. Usually, banks employ different systems when tracking overdrafts. Also, utility bills don’t count when it comes to credit score because the utility companies don’t send details to credit bureaus.

Also, your assets and income do not affect your score because credit reports only depend on the repayment of credit and balance management. Accounts that do not involve borrowing, such as insurance and investments, will not affect your credit score.