What Affects Credit Score?

Your credit score comes from computer programs that scan your credit history for clues about how likely you are to repay debts. While companies keep their exact calculations secret, we know what matters most.

Here's what affects your FICO Score, which most lenders use:

1. Payment History (35%)

Nothing helps your score more than simply paying on time. Even one payment that's 30 days late can hurt your score a lot.

Bigger problems like collections, foreclosures or bankruptcy can damage your score for years.

2. Amounts Owed (30%)

This looks at how much debt you're carrying, especially on credit cards. Your "utilization rate" (the percentage of your credit limit you're using) is super important.

For example:

• Credit card 1: $1,600 balance ÷ $6,500 limit = 25% used

• Credit card 2: $1,500 balance ÷ $4,800 limit = 31% used

• Credit card 3: $1,300 balance ÷ $8,000 limit = 16% used

• Total: $4,400 balance ÷ $19,300 limit = 23% used

People with top scores typically keep utilization under 10%. Going above 30% starts hurting your score. Paying down card 2 in this example would help quickest.

3. Length of Credit History (15%)

The longer you've managed credit, the better. Credit scoring looks at:

• Your oldest account

• Your newest account

• Average age of all accounts

Even closed accounts help your history (they stay on your report for up to 10 years if in good standing).

4. Credit Mix (10%)

Having different types of credit shows you can handle various financial responsibilities. A mix of installment loans (like mortgages or car loans) and revolving accounts (like credit cards) is best.

5. New Credit (10%)

Opening several new accounts quickly can hurt your score. Each credit check (called a "hard inquiry") can drop your score a few points.

But there's good news for rate-shoppers: multiple inquiries for the same type of loan (like a mortgage) within two weeks count as just one inquiry. This doesn't work for credit cards, though—each application counts separately.

How KOHO can help build your credit

If you're working on improving your score, KOHO's Credit Building feature can help:

• KOHO reports your payments to credit bureaus

• You can't overspend since it's not a traditional credit card

• The app helps you track spending and pay bills on time

• No credit check needed to start

Smart credit habits pay off

Understanding these factors helps you make smarter credit decisions. Focus first on paying bills on time and keeping card balances low—these two habits alone make up 65% of your score!

Remember, building good credit takes time, but even small improvements in these areas can boost your score.