Your credit score is a number between 300 and 850 that lenders use to predict how likely you are to repay debt. A higher score means better interest rates on mortgages, auto loans, and credit cards. It also affects apartment applications, insurance premiums, and sometimes even job offers. Understanding what drives your score is the first step to improving it.
The Five FICO Factors
FICO scores (used by 90% of lenders) are calculated from five factors, each weighted differently:
1. Payment History (35%)
The single most important factor. Have you paid your bills on time? A single 30-day late payment can drop your score 60-100 points and stays on your report for 7 years. The impact fades over time - a late payment from 5 years ago hurts less than one from 5 months ago. Collections, bankruptcies, and charge-offs are the most damaging marks in this category.
2. Credit Utilization (30%)
How much of your available credit are you using? If you have a $10,000 credit limit and a $3,000 balance, your utilization is 30%. Scoring models penalize utilization above 30% and reward keeping it under 10%. This is calculated both per-card and across all cards. The good news: utilization has no memory. Pay down your balance and your score rebounds next month.
3. Length of Credit History (15%)
How long have your accounts been open? The average age of all your accounts matters, as does the age of your oldest account. This is why you should never close your oldest credit card - even if you do not use it. A 10-year-old card with no annual fee is a score asset. Keep it open, use it once every 6 months to prevent inactivity closure.
4. Credit Mix (10%)
Lenders like seeing that you can handle different types of credit: credit cards (revolving), auto loans (installment), mortgages, and student loans. You do not need all of these - having 2-3 types is sufficient. Do not take out a loan just to improve your mix; the benefit is marginal.
5. New Credit Inquiries (10%)
Each time you apply for credit, a hard inquiry appears on your report and can lower your score by 5-10 points. The impact fades after 12 months and falls off entirely after 24. Multiple inquiries for the same type of loan (mortgage, auto) within a 14-45 day window are counted as one inquiry - the scoring models know you are rate shopping.
Common Myths
- Checking your own score hurts it - False. Checking your own score is a soft inquiry and has zero impact.
- You need to carry a balance - False. Paying in full every month is the best strategy. The utilization is measured at your statement date, not based on whether you pay interest.
- Closing old cards helps - Usually false. Closing cards reduces your total available credit (raising utilization) and eventually lowers your average account age.
- Income affects your score - False. Your income does not appear on your credit report. High earners can have terrible scores and vice versa.
- All debt is bad - False. A mortgage or student loan with consistent on-time payments helps your score.
How to Check for Free
You can check your actual FICO score for free through many credit card issuers (even if you are not a customer). Discover offers free FICO scores to everyone. You can also get your full credit report (not score) for free weekly at AnnualCreditReport.com from all three bureaus (Equifax, Experian, TransUnion). Check your report at least once a year for errors - about 25% of reports contain mistakes that could lower your score.
Quick Wins for Improvement
- Set up autopay on every account to eliminate late payments
- Pay down credit card balances to under 10% utilization
- Request a credit limit increase (this lowers utilization without changing spending)
- Dispute any errors on your credit report
- Become an authorized user on a family member's old, low-utilization card