Your credit score is a three-digit number that has an outsized impact on your financial life. It affects whether you get approved for loans, what interest rates you pay, whether you can rent an apartment, and sometimes even whether you get a job. Understanding how it’s calculated is the first step to improving it.
Credit Score Ranges
- 800-850: Exceptional — best rates on everything
- 740-799: Very Good — excellent rates
- 670-739: Good — most lenders will approve you
- 580-669: Fair — higher rates, some rejections
- 300-579: Poor — difficult to get approved
The 5 Factors That Calculate Your FICO Score
1. Payment History (35%)
The most important factor. Every on-time payment helps; every late payment hurts — sometimes dramatically. A single 30-day late payment can drop your score by 50-100 points. Set up autopay for at least the minimum on every account.
2. Credit Utilization (30%)
How much of your available credit you’re using. If you have a $10,000 credit limit and carry a $3,000 balance, your utilization is 30%. Keep it below 30% for a good score, below 10% for an excellent score. Paying down balances has the fastest impact on your score.
3. Length of Credit History (15%)
The longer your accounts have been open, the better. This is why you should never close your oldest credit card — even if you don’t use it. Keep old accounts active with a small recurring charge.
4. Credit Mix (10%)
Having different types of credit (credit cards, auto loan, mortgage, student loans) shows lenders you can manage various forms of debt. You don’t need to take on debt just for this factor, but it explains why a mix of accounts is slightly better than only credit cards.
5. New Credit Inquiries (10%)
Every time you apply for new credit, a “hard inquiry” is added to your report and temporarily drops your score by 5-10 points. Multiple applications in a short period signal financial stress to lenders. Rate shopping for mortgages or auto loans within a 14-45 day window counts as one inquiry.
How to Check Your Credit Score for Free
- AnnualCreditReport.com — free full reports from all three bureaus
- Credit Karma — free TransUnion and Equifax scores
- Experian app — free Experian score and monitoring
- Many credit cards now show your score on your monthly statement
How Long Do Negative Items Stay on Your Report?
- Late payments: 7 years
- Collections: 7 years
- Bankruptcy (Chapter 7): 10 years
- Hard inquiries: 2 years (impact fades after 12 months)
Final Thoughts
Your credit score is not a measure of your worth — it’s a measure of how you’ve managed debt. The good news: it’s entirely within your control. Pay on time, keep balances low, don’t close old accounts, and your score will reflect responsible behavior within months.
