Reading literacy (RL) is the core type of literacy of university students. However, the factors that affect the RL of undergraduates have not been thoroughly investigated in previous studies. This study examined the relationships between individual, family, and institutional factors and RL in a sample of 66,312 Chinese undergraduate students. The findings revealed a complex predictive relationship between various factors and university students' RL. Specifically, individual factors, such as gender, grade, major, and place of residence, had a significant influence on RL. Family factors, including socioeconomic and cultural background, as well as the home literacy environment, also played a crucial role on RL. Furthermore, institutional factors, such as institutional type, reading atmosphere, teacher reading guidance, and peer reading interactions, impacted RL. However, the impact of reading resources, such as number of paper books, on RL was not significant. The Shapley value decomposition results provided additional insights, indicating that family factors were the most influential explanatory variables for RL, followed by institutional factors, with individual factors having the least impact on RL. This study suggests that current higher education in China may not completely bridge the reading gap resulting from differences in family factors.