What Goes Into Your Credit Score

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 specific things you do with borrowed money: whether you pay on time, how much you owe compared to your limits, how long you have held credit accounts, what types of credit you use, and how often you explore for new credit. The three major credit bureaus — Equifax, Experian, and TransUnion — each calculate your score independently using the same basic formula, so your number may differ slightly across the three.

The most common scoring model is called FICO, created by the Fair Isaac Corporation. Most lenders use FICO scores when they decide on mortgages, car loans, and credit cards. A second model, VantageScore, is used less often but works similarly. Both models pull data from the same sources: your credit reports, which list every account you have opened, every payment you have made or missed, and every time you have applied for credit.

Key Takeaways

  • Payment history makes up 35 percent of your score, so a single missed payment can lower it by dozens of points and stay on your report for seven years.
  • The amount you owe compared to your credit limits (called utilization) counts for 30 percent, and using more than 30 percent of your available credit typically hurts 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.
  • The types of credit you use and how often you explore for new credit together make up the remaining 20 percent and have smaller but real effects on your number.

Payment History: 35 Percent of Your Score

Whether you pay your bills on time is the single largest factor in your credit score. This includes credit card payments, loan payments, medical bills sent to collection, and utility bills if they are reported to the credit bureaus. A payment is considered late if it arrives 30 days or more after the due date. One late payment can drop your score by 100 points or more, depending on how high it was before and how late the payment was.

Late payments stay on your credit report for seven years from the date you first missed the payment. After seven years, they fall off automatically and stop affecting your score. A payment that is 30 days late hurts less than one that is 90 days late, which hurts less than one sent to a collection agency. If you have missed payments in the past, making all future payments on time will gradually rebuild your score, but the damage from old late payments fades slowly.

Accounts in collections, charge-offs (accounts a lender has given up on), and bankruptcies also live in this category and damage your score severely. A bankruptcy can lower your score by 200 points or more and stays on your report for seven to ten years depending on the type.

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 $1,000 limit and a $300 balance, your utilization on that card is 30 percent. The scoring formula looks at utilization on each individual card and also your total utilization across all cards combined. Most lenders prefer to see utilization below 30 percent, and utilization above 50 percent typically damages your score noticeably.

The key point is that utilization is based on your balance on the day the credit bureau pulls your report, not your average balance or your payment history. If you carry a high balance most of the month but pay it down before the statement closes, the bureau may still report the high balance if they pull your data before you pay. Conversely, if you pay your balance to zero every month, your utilization stays low even if you use the card heavily.

Utilization can change your score within weeks if you pay down a large balance or charge up a card you had not used before. Unlike payment history, which damages your score for years, high utilization stops hurting you as soon as you lower your balance. This makes it one of the fastest factors to improve if you have the cash to pay down debt.

Length of Credit History: 15 Percent of Your Score

The longer you have held credit accounts, the higher this part of your score tends to be. The formula looks at the age of your oldest account, the age of your newest account, and the average age of all your accounts. Someone who has held a credit card for 15 years will score higher on this factor than someone who opened their first card last year, all else equal.

This is why closing old credit cards can hurt your score even if you have never missed a payment. When you close an account, it stops aging, and your average account age may drop. If the closed account was your oldest one, the loss is even larger. The damage is usually temporary — your score will recover over time as your remaining accounts age — but it can be significant in the short term.

If you are new to credit, this factor will work against you straightforward because you have not had time to build a long history. There is no way to speed this up; you can only wait. After five to seven years of on-time payments, the age of your accounts becomes less of a drag on your score.

Credit Mix: 10 Percent of Your Score

Credit mix refers to the different types of credit accounts you have. The two main types are 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 set monthly payments). Having both types of credit on your report shows lenders that you can manage different kinds of debt, and this helps your score slightly.

Credit mix is a small factor — only 10 percent — so you should not open accounts you do not need just to improve this number. If you have only credit cards and no loans, your score will not suffer dramatically. But if you have the opportunity to take out an installment loan for something you were going to buy anyway (like a car), it will help your credit mix modestly.

New Credit Inquiries: 10 Percent of Your Score

Every time you explore for credit — a credit card, a car loan, a mortgage, or even a store card — the lender makes a hard inquiry into your credit report. Hard inquiries show up on your credit report and can lower your score by a few points each. Multiple hard inquiries within a short time (usually two weeks) may count as a single inquiry for scoring purposes if they are for the same type of credit, like car shopping.

Hard inquiries stay on your report for two years but stop affecting your score after about three to six months. Checking your own credit report does not create a hard inquiry and does not hurt your score. Only applications for new credit trigger the damage, and it is usually small — typically five to ten points per inquiry — compared to the impact of late payments or high utilization.

This factor also includes how recently you have opened new accounts. Opening several new accounts in a short time signals to lenders that you may be in financial trouble and borrowing heavily, which can lower your score. Spacing out credit applications over several months reduces this risk.

How the Bureaus Collect the Data

Equifax, Experian, and TransUnion gather information from creditors, lenders, collection agencies, and public records like court filings. Every time you make a payment, miss a payment, or open a new account, that information flows to the bureaus. The bureaus do not calculate your score themselves; they provide the data to FICO or VantageScore, which runs the formula and produces the number.

Each bureau may have slightly different information about you because not all creditors report to all three bureaus. A credit card company might report to Equifax and Experian but not TransUnion, for example. This is why your score can differ across the three bureaus. You can order your credit report from each bureau once per year for free at annualcreditreport.com, which is the official government site. Checking your own reports does not hurt your score.

Frequently Asked Questions

Why is my credit score different at each bureau?

Not all creditors report to all three bureaus, so each bureau may have different information about your accounts. A missed payment might be reported to Equifax and Experian but not TransUnion, for example. Additionally, the bureaus may update their records on different schedules. Your scores will usually be similar, but differences of 20 to 50 points are common.

How long does it take for a payment to show up on my credit report?

Most creditors report to the bureaus once a month, usually around the time your statement closes. It can take 30 to 45 days for a payment to appear on your report and affect your score. If you made a payment late, it may take the same amount of time for the late payment to show up and lower your score.

Can I improve my score quickly?

Paying down credit card balances is the fastest way to improve your score, sometimes within weeks. Fixing errors on your credit report (by disputing them with the bureaus) can also help quickly. Building payment history and letting old negative marks age takes months to years. There is no way to remove accurate information before its time is up.

Does checking my credit score hurt it?

Checking your own score or report does not hurt your score. Only hard inquiries from lenders (when you explore for credit) affect your number. You can check your score as often as you want without damage. Many credit card companies and banks now offer free score monitoring to their customers.

What credit score do I need to get a loan?

Different lenders have different minimums. Most mortgage lenders want a score of at least 620, though better rates usually require 740 or higher. Car lenders often work with scores as low as 550 to 600. Credit card companies typically want 670 or above. The higher your score, the lower your interest rate will be.