What goes into your credit score and why it matters

Your credit score is a three-digit number that lenders use to decide whether to lend you money and at what interest rate. The number comes from a formula that weighs five different categories of information from your credit report: payment history, amounts owed, length of credit history, credit mix, and new credit inquiries. Each category carries a different weight in the calculation.

The most widely used scoring model is called FICO, created by the Fair Isaac Corporation. Other models exist — VantageScore is another common one — but FICO scores are what most banks, credit card companies, and mortgage lenders rely on when you ask to borrow money. Understanding how FICO calculates your score helps you see why certain financial moves raise or lower the number.

Your score ranges from 300 to 850. A higher score means lenders see you as lower risk. The difference between a score of 650 and 750 can mean the difference between being denied a mortgage or paying a higher interest rate on one you do receive. That difference compounds over the life of a loan.

Key Takeaways

  • Payment history makes up 35 percent of your FICO score, so missed or late payments damage your score more than any other single factor.
  • The amount you owe relative to your credit limits (called utilization) accounts for 30 percent, and staying below 30 percent utilization on each card helps your score.
  • How long you have held credit accounts matters for 15 percent of your score, which is why closing old accounts can lower it even if you pay on time.
  • Having different types of credit — credit cards, car loans, mortgages — accounts for 10 percent, while new credit inquiries and recent accounts make up the final 10 percent.

Payment history: 35 percent of your score

Payment history is the largest single factor in your FICO score. This category tracks whether you pay your bills on time, how late you pay them when you do miss a due date, and how often you miss payments. A single late payment can drop your score by 100 points or more, depending on how late it is and what your score was before.

The FICO model distinguishes between different degrees of lateness. A payment 30 days late damages your score less than one 90 days late. A payment that goes to collections or results in a charge-off (when a lender gives up trying to collect) causes far more damage. Bankruptcy appears on your credit report for seven to ten years depending on the chapter.

One missed payment stays on your credit report for seven years from the date you first missed it. This does not mean your score stays damaged for seven years — the impact fades over time, especially if you pay on time after that — but the record itself remains visible to lenders for the full seven years.

Amounts owed: 30 percent of your score

The second-largest factor is credit utilization, which measures how much of your available credit you are currently using. If you have a credit card with a $5,000 limit and a $1,500 balance, your utilization on that card is 30 percent. FICO calculates utilization both per card and across all your cards combined.

Keeping utilization below 30 percent on each card and across all cards helps your score. Using 50 percent or more of your available credit signals to lenders that you may be financially stretched, even if you pay on time. The relationship is not linear — dropping from 50 percent to 30 percent helps more than dropping from 10 percent to 5 percent.

Utilization resets each month based on your balance when your card issuer reports to the credit bureaus, usually around your statement closing date. Paying down a balance before that date lowers the reported utilization, even if you charge the balance back up after the report goes in. Requesting a credit limit increase also lowers utilization without requiring you to pay down the balance, though some issuers do a hard inquiry that temporarily lowers your score.

Length of credit history: 15 percent of your score

FICO looks at how long you have held credit accounts and uses this to make up 15 percent of your score. The calculation includes the age of your oldest account, the age of your newest account, and the average age of all your accounts. Older accounts help your score; newer accounts lower it slightly.

This is why closing a credit card can hurt your score even if you have never missed a payment. When you close an account, it stops aging, and the average age of your accounts drops. If the closed account was your oldest one, the impact is larger. Keeping old accounts open and using them occasionally preserves the length of your credit history.

If you are new to credit, you have a disadvantage here that time alone fixes. A person with two years of credit history will have a lower score than an identical person with ten years, all else equal. This category rewards patience and long-term credit use.

Credit mix and new credit: 25 percent combined

Credit mix makes up 10 percent of your score. FICO distinguishes between revolving credit (credit cards and lines of credit, where you can borrow, repay, and borrow again) and installment credit (car loans, mortgages, and personal loans, where you borrow a fixed amount and pay it back in equal monthly payments). Having both types of credit on your report shows lenders you can manage different kinds of borrowing.

New credit inquiries and recently opened accounts make up the final 10 percent. When you explore for a credit card or loan, the lender requests your credit report — this is called a hard inquiry and lowers your score by a few points. The impact is small and temporary, usually fading within three to six months. Multiple hard inquiries in a short time (within 14 to 45 days, depending on the scoring model) often count as a single inquiry if they are for the same type of credit, such as multiple mortgage applications.

New accounts also lower your score slightly because they reduce the average age of your accounts and represent unknown risk. A new account's impact fades as it ages and you build a payment history on it.

What does not affect your credit score

Several things you might expect to matter do not appear in the FICO formula. Your income, employment history, and savings account balance are not part of your credit score, even though lenders may ask about them separately when you explore for a loan. Your credit score is based entirely on your borrowing and repayment behavior, not your ability to earn or save.

Checking your own credit report does not lower your score — this is called a soft inquiry and does not appear to lenders. Utility bills, rent payments, and insurance premiums do not appear on your credit report unless you fall far behind and the company sends the debt to a collection agency. Paying off a loan early does not hurt your score, though it does remove an active account from your report.

Your race, gender, marital status, and other demographic information are prohibited by law from being used in credit scoring. Lenders are also not allowed to consider your zip code or neighborhood, though they may use this information for other lending decisions.

How to read your credit report and spot errors

You can obtain a free copy of your credit report from each of the three major credit bureaus — Equifax, Experian, and TransUnion — once per year through AnnualCreditReport.com. This is the only federally authorized source for free reports. Each bureau maintains its own report, and they may contain different information because not all creditors report to all three bureaus.

When you review your report, look for accounts you do not recognize, incorrect payment statuses (such as a late payment marked on an account you always paid on time), and duplicate entries. Errors are common. If you find one, you can dispute it directly with the bureau that reported it by mail or through their website. The bureau must investigate within 30 days and remove the error if it cannot verify the information.

Your credit report does not include your credit score — you have to request that separately, usually for a fee, though some credit card issuers and financial websites provide free score estimates. These estimates may differ from your actual FICO score because they use different scoring models or older data, but they give you a general sense of where you stand.

Frequently Asked Questions

How long does it take for a late payment to stop hurting my score?

The impact of a late payment fades over time, especially if you pay on time after that. A 30-day-late payment might drop your score significantly, but the damage decreases each month you stay current. After two years of on-time payments, the impact is much smaller. The late payment itself stays on your report for seven years, but lenders weight recent behavior more heavily than old behavior.

Will paying off my credit card balance to zero help my score?

Paying off your balance helps your utilization ratio, which improves your score. However, paying it to exactly zero does not help more than paying it down to a low percentage. Some people keep a small balance (1 to 5 percent utilization) because they believe it helps, but the research does not support this. Paying down to below 30 percent utilization is what matters.

Does my credit score affect my ability to rent an apartment?

Many landlords check credit reports and scores before approving a rental process, though they may weight the score differently than a lender would. A low score might not disqualify you, but it could lead to a higher security deposit or a requirement for a co-signer. Landlords also look at eviction history and payment patterns on previous rentals, which appear on some credit reports.

Can I improve my score quickly?

Significant improvements take time because payment history (35 percent) and length of credit history (15 percent) cannot be rushed. Paying down credit card balances lowers utilization when ready and can raise your score within a month or two. Disputing errors on your report can also help if inaccurate information is dragging your score down. Avoid opening new accounts or explore for credit unless necessary, as these lower your score temporarily.

What is a good credit score?

FICO scores above 670 are generally considered good, and scores above 740 are considered very good. Scores above 800 are excellent. However, lenders set their own standards — some approve mortgages for scores as low as 580, while others require 700 or higher. The score that matters is the one your specific lender uses, which may differ from the score you see online.