How Your Credit Score Is Calculated (and What Actually Moves It)

Your FICO score runs from 300 to 850. Lenders use it as a quick snapshot of how reliably you've managed debt in the past, and they use it to predict how reliably you'll manage it in the future. A score above 740 typically qualifies you for the best rates available. Below 620 and many conventional lenders will either decline you or price the loan at rates that cost thousands of dollars more over time.

The score is calculated from five factors, each weighted differently. The good news: once you understand the weights, you know exactly where to focus your energy.

The Five Factors

1. Payment History — 35%

This is the single biggest factor in your score, and it's binary: you either paid on time or you didn't. A single 30-day late payment can drop a good score by 60–110 points. The later the payment (60 days, 90 days, collections), the worse the damage. The older the late payment, the less it matters — most negative marks fade significantly after 2 years and fall off entirely after 7.

What to do: Set up autopay for the minimum payment on every account. Even if you can't pay the full balance, autopay prevents the catastrophic late payment. Pay more manually when you can, but never miss the minimum.

2. Amounts Owed (Credit Utilization) — 30%

This measures how much of your available revolving credit you're using. If you have a credit card with a $5,000 limit and you're carrying a $2,500 balance, your utilization is 50% — and that's hurting your score. The general guidance is to keep utilization below 30% on each card and ideally below 10% if you're trying to maximize your score.

3. Length of Credit History — 15%

This looks at the age of your oldest account, your newest account, and the average age of all accounts. Longer history is better. This is why closing an old credit card — even one you don't use — can hurt your score: it removes the age of that account from your average. If a card has no annual fee, keep it open and use it occasionally to keep it active.

4. Credit Mix — 10%

Lenders like to see that you can manage different types of credit responsibly: credit cards (revolving), auto loans, student loans, mortgages (installment). Having only one type isn't disqualifying, but a healthy mix reflects positively. Don't open accounts you don't need just to diversify — the other factors matter much more.

5. New Credit (Hard Inquiries) — 10%

Each time you apply for credit, the lender does a "hard inquiry" that shows up on your report and temporarily dips your score by a few points. Multiple hard inquiries in a short window look like financial distress. The exception: when you're rate shopping for a mortgage or auto loan, the bureaus typically bundle multiple inquiries within a 14–45 day window as a single inquiry.

Three Common Myths

Myth: Checking your own score hurts it. False. When you check your own credit — through AnnualCreditReport.com, your bank, or a credit monitoring service — it's a "soft inquiry" that has zero effect on your score. Only hard inquiries from lenders hurt it, and only slightly.

Myth: Carrying a small balance helps your score. False. This one is particularly costly because people intentionally pay interest based on it. Your score does not benefit from carrying a balance. Pay in full every month. The utilization that matters is the balance on your statement date, not whether you carry it forward.

Myth: Income affects your credit score. False. Your score reflects how you manage debt, not how much you earn. A high earner who misses payments has a worse score than a moderate earner who pays on time every month.

What You Can Do This Week

1. Pull your free credit reports at AnnualCreditReport.com (all three bureaus — Equifax, Experian, TransUnion). Check for errors — they're more common than you'd think, and disputes can take 30–60 days to resolve.
2. Set up autopay for the minimum on every open account if you haven't already.
3. Calculate your utilization on each card. If any card is over 30%, make a plan to pay it down or request a credit limit increase (without spending more).
4. Don't close old accounts unless they have an annual fee you can't justify.