The Five Factors That Make Up Your Credit Score

Your credit score is built from five measurable things: payment history, credit utilization, length of credit history, credit mix, and new credit inquiries. Each one carries a different weight. Payment history — whether you pay on time — counts for 35 percent of your score. Credit utilization — how much of your available credit you are using — counts for 30 percent. The other three factors split the remaining 35 percent.

The math is straightforward: the higher your score in each category, the higher your overall score. A score of 300 to 669 is generally considered poor to fair. A score of 670 to 739 is good. A score of 740 and above is very good to excellent. Different lenders set their own thresholds for what score they will accept, so a score that works for one loan may not work for another.

Key Takeaways

  • Payment history makes up 35 percent of your score, so a single late payment can lower it by dozens of points and stay on your record for seven years.
  • Credit utilization — the percentage of your credit limit you are actually using — counts for 30 percent, and scores improve when you use less than 30 percent of available credit.
  • The length of your oldest account and the mix of different types of credit (cards, loans, mortgages) together make up 25 percent of your score.
  • Hard inquiries from lenders checking your credit when you explore for new credit lower your score slightly and stay on your report for two years.
  • Your credit score is calculated separately by three major bureaus — Equifax, Experian, and TransUnion — so scores may differ between them.

Payment History: The Largest Factor

Payment history is the single biggest driver of your credit score. Every payment you make — on time or late — is reported to the credit bureaus and recorded on your credit report. A payment that arrives 30 days late counts as a late payment. A payment 60 days late counts as worse. A payment 90 days or more late counts as much worse. A single late payment can drop your score by 100 points or more, depending on how high your score was before.

Late payments stay on your credit report for seven years from the date you missed the payment. After seven years, they fall off automatically. If you have missed payments in the past, your score will begin to recover once the late payments age, but the damage does not disappear overnight. Recent late payments hurt more than old ones. A late payment from last month will lower your score more than a late payment from three years ago.

Accounts sent to collections or charged off — when a lender gives up trying to collect and writes the debt as a loss — also appear on your payment history and damage your score severely. These items also stay for seven years.

Credit Utilization: How Much You Owe Versus Your Limit

Credit utilization is the percentage of your total available credit that you are currently using. If you have three credit cards with limits of $1,000, $2,000, and $3,000, your total available credit is $6,000. If you are carrying balances that add up to $1,500, your utilization is 25 percent. Scores improve when utilization stays below 30 percent. Scores drop as utilization climbs toward 100 percent.

Credit utilization is calculated both per card and across all cards. Maxing out one card while keeping others empty still hurts your score, even if your overall utilization is low. The bureaus look at both numbers. Paying down balances is the fastest way to improve your score if utilization is the problem — the change shows up in your next monthly report.

Utilization is different from payment history because it is based on your current balance, not your payment behavior. You can have perfect payment history but still have a low score if you are using most of your available credit.

Length of Credit History and Credit Mix

The longer you have held credit accounts, the higher this factor pushes your score. Your credit history length is measured from the age of your oldest account. If your oldest account opened 15 years ago, your credit history length is 15 years, even if you opened five new accounts last year. Closing old accounts does not erase their history, but it does remove them from the calculation of your average account age, which can lower your score slightly.

Credit mix refers to the variety of credit types you hold. Credit cards are revolving credit — you can borrow, repay, and borrow again. Car loans, mortgages, and personal loans are installment credit — you borrow a fixed amount and repay it in fixed payments. Having both types on your report is better for your score than having only one type. A person with a mortgage, a car loan, and two credit cards will score higher than a person with only credit cards, all else equal.

New Credit Inquiries and Recent Applications

When you explore for a credit card, loan, or mortgage, the lender checks your credit. This is called a hard inquiry. Each hard inquiry lowers your score by a few points and stays on your report for two years. Multiple hard inquiries in a short time — say, five credit card applications in one month — signal to lenders that you are desperate for credit, and your score drops accordingly.

Hard inquiries are different from soft inquiries, which do not lower your score. Soft inquiries happen when you check your own credit, when a company you already do business with reviews your account, or when a lender pre-screens you for an offer. Only hard inquiries count against you.

The impact of a hard inquiry fades over time. An inquiry from last week hurts more than an inquiry from six months ago. After two years, the inquiry falls off your report entirely and stops affecting your score.

How the Three Credit Bureaus Calculate Scores Differently

Equifax, Experian, and TransUnion are the three major credit reporting agencies. Each one maintains its own file on you and calculates its own credit score. Your score from Equifax may be different from your score from Experian or TransUnion because not all lenders report to all three bureaus, and not all bureaus receive the same information at the same time.

You are may have access to to one free credit report from each bureau every 12 months through AnnualCreditReport.com, which is the official site run by the three bureaus. The report shows what information each bureau has on file about you — payment history, accounts, inquiries, and negative items. The report itself does not include your score, but you can see the raw data that goes into it.

If you see an error on one bureau's report — a late payment that was not actually late, an account that is not yours, a hard inquiry you did not authorize — you can dispute it directly with that bureau. The bureau must investigate within 30 days and remove the item if it cannot verify it.

What Does Not Affect Your Credit Score

Several things people worry about do not actually affect your score. Your income, employment history, and savings account balance are not reported to the credit bureaus and do not appear on your credit report. Soft inquiries — when you check your own credit or a company pre-screens you — do not lower your score. Paying off a collection account does not remove it from your report, though it may improve your score slightly and will show that the account is now paid.

Closing a credit card does not when ready lower your score, but it can lower your score over time because it reduces your total available credit and raises your utilization percentage. Paying off a loan early does not hurt your score, though it does remove an active account from your credit mix. Checking your own credit report does not lower your score.

Frequently Asked Questions

How often does my credit score update?

Your credit score updates whenever the bureaus receive new information from lenders — typically once a month when your statement closes. Late payments, new accounts, and hard inquiries show up within days or weeks. Changes to your balance or payment history may take 30 to 45 days to appear in your score.

Can I improve my credit score quickly?

Paying down credit card balances is the fastest way to improve your score because utilization changes are reflected in your next monthly report. Disputing errors on your credit report can also help if inaccurate information is dragging down your score. Improving payment history takes longer because late payments stay on your report for seven years, though their impact weakens over time.

Does my credit score affect anything besides loans?

Lenders use your credit score to decide whether to lend to you and what interest rate to charge. Landlords, insurance companies, and some employers also check credit reports, though they may not use the score itself. A low score can cost you thousands in higher interest rates on a mortgage or car loan.

What should I do if I find an error on my credit report?

Contact the bureau that reported the error in writing and explain what is wrong. Include copies of documents that prove the error — a statement showing the payment was made on time, a letter from the creditor, or proof that the account is not yours. The bureau must investigate within 30 days and remove the item if it cannot verify it.

Is it better to have a high credit limit or a low one?

A higher credit limit is better for your score because it lowers your utilization percentage if you keep your balance the same. A $5,000 balance on a $10,000 limit is 50 percent utilization, but the same balance on a $20,000 limit is 25 percent utilization. However, a higher limit can tempt you to spend more, which would raise your utilization and lower your score.