How Credit Scores Work: The Five Factors Behind Your FICO Score

A credit score is a three-digit number, usually between 300 and 850, that estimates how likely you are to repay borrowed money. Lenders use it to decide whether to approve you and what interest rate to charge, so a stronger score can save thousands of dollars over the life of a mortgage or auto loan.

The five factors

FICO, the scoring model used by most US lenders, publishes the general weight of each factor:

• Payment history (about 35%): whether you pay on time. A single payment 30 or more days late can stay on your report for seven years.
• Amounts owed (about 30%): especially your credit utilization, the share of your available card limits you are using. Keeping it under 30%, and ideally under 10%, helps.
• Length of credit history (about 15%): the age of your oldest and newest accounts and the average age of all of them.
• New credit (about 10%): recent applications create hard inquiries, which have a small, temporary effect.
• Credit mix (about 10%): experience with both revolving credit (cards) and installment loans (auto, student, mortgage).

What does not affect your score

Your income, savings, employer, age, race, religion and marital status are not part of a credit score. Checking your own credit is a soft inquiry and never lowers it.

How to improve it

1. Set up autopay for at least the minimum on every account.
2. Pay card balances down before the statement closing date to lower reported utilization.
3. Keep older cards open unless they carry an annual fee you do not want.
4. Space out new credit applications.
5. Review your reports from Equifax, Experian and TransUnion for free at AnnualCreditReport.com and dispute any errors.

The bottom line: on-time payments and low balances do most of the work. Build those habits and your score will follow.

This guide is for general information only and is not financial advice. See our Disclaimer.