Feature: Credit scores: What matters, What doesn't

Some people believe everything from where they live to the color of their skin affects their credit score. Here's what influences scores, what doesn't, and what you can do to improve yours.

By Stacy Johnson on Wed, Nov 9, 2011 2:28 PM

This post comes from Brandon Ballenger at partner site Money Talks News. 

Nearly one in six people believe race and gender affect their credit score, according to a study published recently.

ere's what folks believe about their credit scores, at least according to Visa. Those surveyed think scores are affected by...

• Employment history: 59.9%
• Interest rates on debt: 58.7%
• Assets / savings: 53.1%
• Age: 38.6%
• Where you live: 25.3%
• National origin: 21.6%
• Ability to speak English: 21.6%
• Gender: 17.2%
• Race: 15.7%

But none of these factors has the slightest effect on your credit score. It would be illegal for Fair Isaac (the company that calculates FICO scores, by far the nation's most popular) to consider some of these factors — things such as race, religion, birthplace, gender, and marital status. If you'd like to see a complete list of things they explicitly ignore when calculating your credit score, you can check it out here.

What does count

Raising your credit score may not be easy, but the factors behind it are no secret. In fact, Fair Isaac explains exactlywhat factors influence your credit score. They even weigh each factor for you...

• Payment history (35%) – This is your track record of paying back what you borrowed. Accounts in collection, late payments, and bankruptcy are bad; paying on time for a long period is good.
• Amounts owed (30%) – This is based on the total amounts you owe, and the ratio of what you're allowed to borrow to what you currently owe, called your "utilization ratio." Maxing out your credit hurts it; keeping a lot of unused credit available helps it. Ideally, you want to keep your utilization ratio below 30 percent. So if you have a credit card with a $1,000 limit, you'd want to keep your balance below $300.
• Length of credit history (15%) – This considers the length of time each credit account has been open, and when each account was last updated with payment or usage info. As you might imagine, the longer your history, the better. This is why if you're going to cancel a credit card, all things being equal, ditch the newest and keep the oldest.
• New credit (10%) – This includes recent inquiries and requests for credit. Regularly applying for new credit cards or other loans will cost you.
• Types of credit used (10%) – There's all kinds of credit out there, from revolving (credit cards) to installment (car and home loans.) Fair Isaac likes you to be well-rounded and sample them all. In short, diversity helps.