Personal Finance
How Credit Scores Work
Quick answer
A credit score (usually FICO, 300–850) predicts how likely you are to repay debt. It's built from five factors: payment history (35%), amounts owed (30%), length of credit history (15%), new credit (10%), and credit mix (10%). Pay on time and keep balances low — those two factors alone drive two-thirds of your score.
Key takeaways
- Payment history (35%) and utilization (30%) drive ~65% of your FICO score.
- Utilization = balance ÷ limit per card and overall; under 30% is good, under 10% is better.
- Checking your own score never hurts it — that's a soft inquiry.
- Scores update as lenders report, usually monthly; changes take 30–60 days to appear.
The five factors
Payment history (35%). Do you pay on time, every time? One 30-day late payment can drop a good score by 60–100+ points; the damage fades over about two years and falls off your report after seven.
Amounts owed (30%). Mostly utilization: what fraction of your credit limits you're using. $2,000 on a $10,000 limit is 20% — fine. $9,000 is 90% — alarming, even if you pay in full monthly, because the snapshot may catch the balance before your payment posts.
Length of history (15%). Age of your oldest account and average age of all accounts. This is why closing your first card can cost you — you erase years of history.
New credit (10%). Hard inquiries from applications shave a few points temporarily; several in a short window look risky (rate-shopping for one mortgage/auto loan counts as one).
Credit mix (10%). Responsibly handling different types — cards plus an installment loan — helps slightly. Never borrow just to improve your mix.
FICO vs. VantageScore
FICO is what most lenders actually use (90%+ of decisions). VantageScore — the score most free apps show — uses similar factors with slightly different weights. They usually move together; if your VantageScore rises, your FICO likely is too. When a lender quotes a required score, assume they mean FICO.
What doesn't affect your score
Checking your own score or report. Your income, savings, or net worth (lenders ask separately). Debit card use. Rent payments — unless reported through a rent-reporting service. And closing a card with a $0 balance doesn't help; it raises your utilization by shrinking total available credit.
At a glance
| Factor | Weight | Biggest lever |
|---|---|---|
| Payment history | 35% | Autopay everything |
| Amounts owed (utilization) | 30% | Keep balances under 30% of limits |
| Length of history | 15% | Keep oldest cards open |
| New credit | 10% | Space out applications |
| Credit mix | 10% | Don't force it |
FICO score factors
What this means for you
Two habits build almost any score: pay everything on time (autopay is the cheat code) and keep card balances low relative to limits. Everything else is optimization. Check your score monthly — watching it move teaches you what works.
FAQ
How long does it take to build credit from scratch?
You'll generate a FICO score after about 6 months of reported activity. Meaningful scores (670+) typically take 12–24 months of clean history with a starter or secured card.
Will paying off a collection remove it?
Not automatically — paid collections can remain for 7 years from the original delinquency, though newer FICO versions ignore paid medical collections. You can ask for 'pay for delete' in writing; get any agreement before paying.
Does carrying a balance help my score?
No — this myth costs people millions in interest. Paying in full every month builds the exact same history as carrying a balance, minus the interest.
Sources
- Consumer Financial Protection Bureau — credit scores and reports (consumerfinance.gov)
- myFICO — score education (myfico.com)
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