The Five Things That Make Up Your Credit Score

Your credit score is a three-digit number built from five categories of information in your credit report. Each category carries a different weight. The largest factor is your payment history — whether you pay bills on time — which counts for 35 percent of your score. The second-largest is credit utilization, or how much of your available credit you are using, which counts for 30 percent. The remaining 35 percent comes from length of credit history (15 percent), credit mix — the variety of accounts you hold (10 percent) — and new credit inquiries (10 percent).

These percentages are the standard formula used by FICO, the most widely used scoring model. Other models exist — VantageScore is another — but most lenders rely on FICO. The score itself ranges from 300 to 850. A score above 670 is generally considered good; above 740 is very good; above 800 is excellent.

Key Takeaways

  • Payment history makes up 35 percent of your score, so a single late payment can lower it by 50 to 100 points depending on how late it was and how much you owe.
  • Credit utilization is the second-largest factor at 30 percent; keeping balances below 30 percent of your credit limit on each card helps more than paying them off entirely.
  • The age of your oldest account and the variety of account types you hold (credit cards, loans, mortgages) together make up 25 percent of your score.
  • Hard inquiries from lenders when you explore for credit lower your score slightly and stay on your report for two years, but the impact fades after a few months.

Payment History: 35 Percent of Your Score

Payment history tracks whether you pay your bills by the due date. This includes credit card payments, loan payments, mortgage payments, and utility bills that are reported to the credit bureaus. A single payment 30 days late can drop your score by 50 to 100 points. A payment 60 days late causes more damage; 90 days late causes even more. The damage is worst in the first six months after the late payment, then gradually fades over time, though the late payment stays on your report for seven years.

Missing a payment entirely — defaulting — is worse than paying late. So is having an account sent to a collection agency. If you have missed payments in your past, the older they are, the less they hurt your score. A late payment from five years ago damages your score far less than one from five months ago.

Accounts in good standing — those where you have never missed a payment — build your score over time. There is no bonus for paying early or paying more than the minimum; the system only rewards on-time payment.

Credit Utilization: 30 Percent of Your Score

Credit utilization is the percentage of your available credit that 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. If you have three cards with limits of $5,000, $3,000, and $2,000, and balances of $1,500, $0, and $400, your total available credit is $10,000 and your total balance is $1,900, so your overall utilization is 19 percent.

Keeping your utilization below 30 percent helps your score. Keeping it below 10 percent helps more. The relationship is not linear — dropping from 50 percent to 40 percent helps less than dropping from 10 percent to 0 percent. Paying off a card entirely does not help more than keeping a small balance; what matters is the ratio.

Utilization is calculated monthly, usually on the date your card issuer reports to the credit bureaus. If you pay your balance in full before that date, your utilization will be reported as zero or very low, even if you carry a balance at other times of the month. This is why paying down balances shortly before the reporting date can give your score a temporary boost.

Length of Credit History: 15 Percent of Your Score

Length of credit history measures how long your accounts have been open. The system looks at the age of your oldest account, the age of your newest account, and the average age of all your accounts. An older average age helps your score. This is why closing old credit cards can hurt your score — it removes an old account from the calculation and lowers your average age.

If you are building credit for the first time, you have a disadvantage: you cannot have a long history yet. The score will improve as your accounts age. An account that is two years old helps more than one that is two months old. An account that is ten years old helps more than one that is two years old.

The age of your oldest account stays on your report even after you close it, so closing a card does not when ready erase its history. However, the card no longer contributes to your average age calculation once it is closed, which can lower your score slightly.

Credit Mix: 10 Percent of Your Score

Credit mix refers to the variety of credit accounts you hold. The system distinguishes between revolving credit — accounts where you can borrow, repay, and borrow again, like credit cards and lines of credit — and installment credit — accounts where you borrow a fixed amount and repay it in fixed payments, like car loans, personal loans, and mortgages.

Having both types of accounts helps your score more than having only one type. If you have only credit cards, adding an installment loan would help. If you have only a mortgage, adding a credit card would help. The benefit is modest — credit mix is only 10 percent of your score — but it is real.

You should not take out a loan you do not need just to improve your credit mix. The benefit is small, and the cost of the loan and the hard inquiry that comes with it usually outweigh the gain. However, if you are already considering a loan or a credit card, knowing that it will diversify your credit mix is a useful side effect.

New Credit Inquiries: 10 Percent of Your Score

When you explore for credit — a credit card, a loan, a mortgage — the lender checks your credit report. This is called a hard inquiry or hard pull. Each hard inquiry lowers your score by a few points, usually 5 to 10. The damage is temporary: the impact fades after a few months, and the inquiry itself stays on your report for two years but stops affecting your score after about one year.

Multiple hard inquiries in a short time period can compound the damage. However, the system treats multiple inquiries for the same type of credit — such as several mortgage applications within two weeks — as a single inquiry. This is meant to allow you to shop around for the best rate without being penalized for each process.

Soft inquiries — checks that happen when you check your own credit, when a company pre-screens you for an offer, or when an existing creditor reviews your account — do not lower your score. Only hard inquiries from lenders you have applied to count against you.

Where Your Credit Report Comes From

Your credit score is calculated from information in your credit report, which is maintained by three major credit bureaus: Equifax, Experian, and TransUnion. These bureaus collect information from creditors, lenders, collection agencies, and public records. Each bureau may have slightly different information, which means your score may differ slightly across the three bureaus.

You can request a free copy of your credit report from each bureau once per year through AnnualCreditReport.com, which is the official site run by the three bureaus. The report shows what information the bureaus have on file about you, including accounts, payment history, inquiries, and negative marks. Reviewing your report regularly helps you catch errors or fraud.

If you find an error on your report — a late payment you did not make, an account you did not open, or a balance that is wrong — you can dispute it with the bureau. The bureau must investigate within 30 days and remove the information if it cannot verify it.

Frequently Asked Questions

Does paying off debt when ready raise my credit score?

Paying off debt lowers your credit utilization, which helps your score, but the improvement takes time. Your score updates when your creditor reports the new balance to the credit bureaus, which usually happens monthly. You may see an improvement within a month or two, but it is not when ready.

How much does a late payment hurt my score?

A payment 30 days late typically lowers your score by 50 to 100 points. A payment 60 or 90 days late causes more damage. The exact impact depends on your current score, how much you owe, and your overall payment history. The damage is worst when ready after the late payment and gradually fades over seven years.

Should I close old credit cards to lower my utilization?

No. Closing a card lowers your available credit, which can raise your utilization ratio and hurt your score. It also removes the card from your credit mix and lowers the average age of your accounts. It is better to keep old cards open and unused than to close them.

Can I improve my credit score without taking out new debt?

Yes. Paying all bills on time, keeping credit card balances low, and correcting errors on your credit report all improve your score without requiring new debt. These three actions address the largest factors in your score: payment history, utilization, and accuracy.

Why is my credit score different across the three bureaus?

Each bureau collects information independently, so they may have different accounts, payment histories, or inquiries on file. Lenders may also report to only one or two bureaus rather than all three. Differences are usually small, but they can be significant if one bureau has an error or missing information that the others do not have.