What a Credit Score Measures

A credit score is a three-digit number that lenders use to decide whether to lend you money and at what interest rate. It is based on your history of borrowing and repaying — how much debt you have, whether you paid on time, and how long you have been using credit. The score itself does not measure your income, your job stability, or how responsible you are in other parts of your life. It measures only what lenders can see in your credit report.

The most common credit scores range from 300 to 850. A higher score means lenders see you as lower risk. A lower score means they see you as higher risk — and if they lend to you at all, they will charge a higher interest rate to cover that risk. Your score can change month to month as new information gets added to your credit report.

Three companies — Equifax, Experian, and TransUnion — maintain credit reports and calculate scores. These are called credit bureaus. Lenders report your payment history to them, and the bureaus use that information to build your score. You have a separate credit report and score at each bureau, and they can differ because not all lenders report to all three.

Key Takeaways

  • Your credit score is a number between 300 and 850 that lenders use to decide whether to lend you money and how much interest to charge.
  • The score is based on five factors: payment history (35 percent), amounts owed (30 percent), length of credit history (15 percent), credit mix (10 percent), and new credit inquiries (10 percent).
  • You can get your credit report free once per year from each of the three credit bureaus at annualcreditreport.com, and you should check it for errors.
  • Late payments, high balances, and collections accounts hurt your score; on-time payments and low balances help it recover over time.
  • Your credit score affects the interest rate you pay on mortgages, car loans, credit cards, and personal loans — sometimes by thousands of dollars over the life of the loan.

The Five Factors That Make Up Your Score

Payment history is the largest part of your score — 35 percent. This is whether you paid your bills on time. A single late payment can lower your score, and the later the payment, the bigger the damage. A payment 30 days late hurts less than one 90 days late. Payments that are 60 or 90 days late stay on your report for seven years.

Amounts owed makes up 30 percent. This includes how much total debt you carry and how much of your available credit you are using. If you have a credit card with a $5,000 limit and a $4,500 balance, you are using 90 percent of that limit — which hurts your score. Using less than 30 percent of your available credit is better for your score. This is called your credit utilization ratio.

Length of credit history is 15 percent. This is how long you have had credit accounts open. Older accounts help your score more than new ones. Closing an old account can lower your score because it shortens your average account age.

Credit mix is 10 percent. Lenders like to see that you can handle different types of credit — credit cards, car loans, mortgages, and personal loans. Having only one type of credit (like only credit cards) can lower your score slightly compared to having a mix.

New credit inquiries make up the final 10 percent. When you explore for a loan or credit card, the lender checks your credit report. This is called a hard inquiry and it lowers your score a little. Multiple hard inquiries in a short time (like shopping for a car loan) count as one inquiry if they happen within 14 to 45 days, depending on the scoring model. Checking your own credit report does not lower your score — that is called a soft inquiry.

How to Get Your Credit Report and Score

You are may have access to to one free credit report per year from each of the three bureaus. Go to annualcreditreport.com, which is the official site run by the three bureaus. You can request your report online, by phone at 1-877-322-8228, or by mail. You will need to provide your name, address, date of birth, and Social Security number. The site will ask you security questions to verify your identity.

Getting your report this way does not lower your score. You should check all three reports because they can contain different information. Look for accounts you do not recognize, late payments you do not remember, or other errors. If you find a mistake, you can dispute it with the bureau that reported it. The bureau must investigate within 30 days and remove the error if it cannot verify it.

Your credit score is different from your credit report. The report is the raw data; the score is a number calculated from that data. Many websites offer free credit scores, but they may use different scoring models than the ones lenders use. Credit card companies and banks often show you a free score if you are a customer. These free scores are usually close enough to give you a sense of where you stand, but they may not be the exact score a lender sees.

What Hurts Your Credit Score

Late payments are the most damaging. A payment 30 days late lowers your score more than a payment a few days late. Payments 60 or 90 days late cause much larger drops. Once a payment is 30 days late, it stays on your report for seven years, even if you pay it later.

Collections accounts also hurt badly. If you do not pay a debt, the creditor may sell it to a collections agency. That agency then tries to collect from you. A collections account on your report signals to lenders that you stopped paying a debt entirely, and it can lower your score by 100 points or more.

High credit card balances lower your score because they raise your credit utilization ratio. Maxing out a card is worse than carrying a moderate balance. Closing a credit card account can also hurt your score because it lowers your total available credit and may shorten your credit history.

Bankruptcy, foreclosure, and tax liens are serious marks that stay on your report for seven to ten years. They signal that you could not meet major financial obligations. Hard inquiries from explore for new credit lower your score slightly, but the effect fades over time.

How to Improve Your Credit Score

The fastest way to raise your score is to lower your credit card balances. If you can pay down a card from 90 percent utilization to 30 percent, your score may jump 20 to 50 points within a month or two. Even paying down one card helps.

Make all your payments on time, every time. Set up automatic payments if you tend to forget. One on-time payment does not raise your score much, but a pattern of on-time payments over months and years builds it steadily. Late payments hurt more than on-time payments help, so avoiding late payments is more important than chasing perfect payment history.

Do not close old credit card accounts, even if you do not use them. Keeping them open preserves your credit history length and your available credit. You can put a small recurring charge on an old card (like a streaming service) and pay it off each month to keep the account active.

Dispute errors on your credit report. If a late payment is not yours, or if an account was closed but still shows as open, contact the bureau and ask them to investigate. Removing errors can raise your score by tens of points.

Recovering from damage takes time. A late payment hurts less after two years, and much less after five years. Collections accounts and bankruptcy fade over time as well. The older the negative mark, the less it affects your score.

How Credit Scores Affect Borrowing Costs

Your credit score directly affects the interest rate you pay on loans. A person with a score of 750 might get a mortgage at 6.5 percent, while a person with a score of 650 might pay 7.5 percent. That one percentage point difference costs thousands of dollars over 30 years.

The same applies to car loans, personal loans, and credit cards. A higher score means a lower rate. A lower score means a higher rate — or the lender may decline to lend to you at all. Some lenders have minimum score requirements and will not work with anyone below that threshold.

Your score can also affect whether you get a security deposit back on an apartment, whether you can get a cell phone contract without prepaying, and sometimes even whether you get hired for a job (though employers see a different type of report called an employment background check, not your credit score).

Frequently Asked Questions

How long does it take to raise a credit score?

It depends on what is hurting your score. Paying down credit card balances can raise your score within one or two months. Building a pattern of on-time payments takes longer — usually three to six months before you see a noticeable jump. Removing a late payment from your report takes longer; the damage fades over years, not weeks.

Does checking my own credit score lower it?

No. Checking your own credit report or score is a soft inquiry and does not lower your score. Only hard inquiries from lenders (when you explore for credit) lower your score, and only by a few points.

What is a good credit score?

Scores above 670 are generally considered good, and scores above 740 are considered very good. Scores above 800 are excellent. However, different lenders have different standards. Some will lend to people with scores in the 600s, but at a higher interest rate. The higher your score, the better rates you will get.

Can I have a credit score if I have never borrowed money?

No. You need a history of borrowing and repaying to have a credit score. If you have never had a credit card, loan, or other credit account, you have no score. You can start building one by opening a credit card or becoming an authorized user on someone else's account.

How often does my credit score change?

Your score can change whenever new information is added to your credit report — usually monthly when lenders report your payment status. Large changes (like a late payment or paying down a balance) can happen within a month. Small changes happen constantly as accounts age and new information arrives.