How Credit Scores Work: The Five Factors in Plain Language

A credit score is a three-digit number that summarizes how you have handled credit in the past. Lenders, card issuers, landlords, and some insurers may use it to estimate how likely you are to pay as agreed. It is not a measure of your income, your savings, or your worth as a person.

This guide explains where the number comes from, what goes into it, and which everyday habits tend to move it.

Where a credit score comes from

Your score is calculated from the information in your credit report. In the US, three nationwide credit bureaus collect that information: Equifax, Experian, and TransUnion. Lenders and card issuers report your account details to one or more of them, usually about once a month.

A scoring model then reads your report and turns it into a number. The two most widely used model families are:

• FICO Scores, which commonly range from 300 to 850
• VantageScore, whose recent versions also use a 300 to 850 range

Because there are several models and versions, and because each bureau may hold slightly different data, you do not have just one score. Seeing a few different numbers is normal.

The five factors

FICO publishes general weightings for the categories its common models consider. VantageScore uses similar ideas with different labels and weights. The FICO breakdown is a useful starting point:

1. Payment history (about 35%). Whether you have paid past accounts on time. Late payments, especially those 30 or more days past due, can have a significant effect.
2. Amounts owed (about 30%). How much you currently owe, and in particular how much of your available revolving credit you are using. This share is called credit utilization.
3. Length of credit history (about 15%). How long your accounts have been open, including your oldest account and the average age of all accounts.
4. New credit (about 10%). How many accounts you have opened recently and how many hard inquiries appear on your report.
5. Credit mix (about 10%). Whether you have handled different types of credit, such as credit cards and installment accounts like an auto or student loan.

These percentages are general guides, not fixed rules. How much each factor matters can vary from person to person, depending on what is in a given report.

Two worked examples

Credit utilization

Suppose you have two credit cards:

• Card A: $900 balance on a $3,000 limit
• Card B: $600 balance on a $2,000 limit

Your total balances are $900 + $600 = $1,500. Your total limits are $3,000 + $2,000 = $5,000. Your overall utilization is $1,500 ÷ $5,000 = 0.30, or 30%.

If you paid the combined balances down to $500, your utilization would be $500 ÷ $5,000 = 0.10, or 10%. Lower utilization is generally viewed more favorably, and because it reflects current balances, it can change from month to month.

Average age of accounts

Now suppose you have three accounts that are 8 years, 4 years, and 1 year old. The average age is (8 + 4 + 1) ÷ 3 = 13 ÷ 3, or about 4.3 years.

If you opened a fourth account today, it would start at 0 years. The new average would be (8 + 4 + 1 + 0) ÷ 4 = 13 ÷ 4 = 3.25 years. That drop is one reason a new account can cause a small, temporary dip in some scores. Over time, as all accounts age, the average rises again.

What is not in your score

Credit scores only use information in your credit report. They do not consider:

• Your income or job title
• Your savings or checking balances
• Your race, religion, national origin, sex, or marital status
• Your age, under the most common models
• Where you live
• Whether you have used a nonprofit credit counseling service

A lender may look at some of these things, like income, when deciding on an application. But they are not part of the score itself.

Common misunderstandings

A few ideas come up often and are worth clearing up:

• Checking your own score does not hurt it. That is a soft inquiry.
• Carrying a balance is not required to build credit. Paying your statement balance in full each month still shows on-time payment history, and it avoids interest charges.
• Closing an old card does not remove its history right away. However, closing a card reduces your total available credit, which can raise your utilization.
• Income does not raise your score directly. A higher income may help you manage payments, but the score itself does not see it.

How scores tend to change over time

Scores respond to patterns. A single on-time payment does little on its own, but months and years of on-time payments build a strong history. Likewise, the effect of a late payment usually fades as it gets older and as newer, positive information is added.

Most negative items, including late payments and an account sent to collections, can remain on a report for up to seven years. Accurate information generally stays for that full period. Companies that charge upfront fees and claim they can remove accurate negative items from your report are making promises the law does not support. If something on your report is wrong, you can dispute it with the credit bureau yourself at no cost.

Habits that often support a score over time include paying every bill on time, keeping card balances low relative to limits, applying for new credit only when you need it, and keeping older accounts open when it makes sense for you.

Next steps

• Calculate your own ratio with the credit utilization calculator.
• Learn to read the source data in how to read your credit report.
• Go deeper on the second-largest factor in credit utilization explained.
• Browse more plain-language guides in the Credit Confidence section.