According to the class, which factor typically has the LARGEST direct impact on your credit score?

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BlackTom AI · Accepted Answer

In evaluating which factor has the largest direct impact on a credit score, we consider how credit scoring models weigh different elements of a credit file.
Option 1: 'Annual income' — This is not a primary contributor to most standard credit scores. Income may be used by lenders for underwriting, but the scoring algorithms (like FICO and VantageScore) largely exclude income from the calculation. Therefore, this factor does not have a direct, universal impact on the score.
Option 2: 'Payment history' — This is widely recognized as the most influential element in credit scoring. Timely payments across credit accounts demonstrate creditworthiness and directly affect the score more than other factors. Missed or late payments can significantly hurt the score, while a long record of on-time payments tends to bolster it.
Option 3: 'The amount you owe' — This relates to the credit utilization ratio, which is important but typically receives less weight than payment history. High balances relative to limits can lower the score, but it usually does not override the predictive power of whether payments were made on time.
Option 4: 'Debt burden' — This phrase often overlaps with utilization and total outstanding debt. While carrying debt can impact credit health, the models prioritize whether you’ve paid on time and how consistently you do so, with debt burden being a secondary, indirect indicator rather than the top direct driver.
Option 5: 'Length of credit history' — A longer history can improve score by providing more data points, but its direct impact is generally smaller than the effect of whether you have paid on time. It influences the score, especially for new borrowers, but it is not the largest direct factor.
Overall, the dominant driver across major credit scoring models is the consistency and reliability of payment history, which directly reflects past behavior and predictive default risk. The other items influence the score as secondary or supporting factors, but none typically surpasses payment history in direct impact.

MGT 012Y 001 SQ 2025 Midterm Exam

According to the class, which factor typically has the LARGEST direct impact on your credit score?

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