What Is a Credit Score?
A credit score is a three-digit number — typically ranging from 300 to 850 — that lenders use to assess how likely you are to repay borrowed money. The higher your score, the more financially trustworthy you appear to banks, landlords, and creditors. Understanding exactly how this number is calculated gives you the power to influence it.
The Five Factors That Make Up Your Score
Most credit scoring models, including the widely used FICO® Score, calculate your score based on five key factors. Each carries a different weight:
| Factor | Weight | What It Measures |
|---|---|---|
| Payment History | 35% | Whether you pay bills on time |
| Credit Utilization | 30% | How much of your available credit you use |
| Length of Credit History | 15% | How long your accounts have been open |
| Credit Mix | 10% | Variety of credit types (cards, loans, etc.) |
| New Credit Inquiries | 10% | Recent applications for new credit |
Payment History (35%)
This is the single most important factor. Every time you pay a bill on time, it reinforces your reliability. Conversely, a single missed payment — especially one more than 30 days late — can significantly drag your score down. The impact of a late payment diminishes over time, but it can remain on your report for up to seven years.
Credit Utilization (30%)
Credit utilization is the ratio of your current credit card balances to your total credit limits. For example, if you have a $1,000 limit and carry a $400 balance, your utilization is 40%. Most financial experts recommend keeping this ratio below 30%, and ideally under 10% for the best score impact.
- Pay down balances before your statement closing date to lower reported utilization.
- Ask for a credit limit increase (without spending more) to improve the ratio.
- Avoid closing old credit cards, as it reduces your total available credit.
Length of Credit History (15%)
The longer your accounts have been open and active, the better. This factor considers the age of your oldest account, your newest account, and the average age of all accounts. This is why financial advisors often suggest keeping older credit cards open even if you rarely use them.
Credit Mix (10%)
Lenders like to see that you can handle different types of credit responsibly. A healthy mix might include a credit card, a car loan, and a mortgage. You don't need one of every type — this factor simply rewards diversity when it's present.
New Credit Inquiries (10%)
When you apply for new credit, the lender performs a hard inquiry on your report. Each hard inquiry can temporarily lower your score by a few points. Multiple applications in a short window can compound this effect. Note that soft inquiries — like checking your own score or pre-approval checks — do not affect your score.
Score Ranges at a Glance
- 800–850: Exceptional — you'll qualify for the best rates
- 740–799: Very Good — excellent terms available
- 670–739: Good — most lenders will approve you
- 580–669: Fair — approval possible, but at higher rates
- 300–579: Poor — limited options, focus on rebuilding
Next Steps
Now that you understand what drives your credit score, you can take targeted action. Pull your free credit report from the official annualcreditreport.com, identify which factors are dragging your score down, and start addressing them one at a time. Small, consistent improvements compound over time.