How Your Credit Score Is Calculated

The Number That Runs Your Financial Life

Your FICO score is a three-digit number between 300 and 850 that lenders use to measure how likely you are to repay a debt. It determines whether you qualify for a mortgage, what interest rate you’ll pay on a car loan, and even whether you’ll be approved for an apartment. Understanding how it’s calculated is the first step to improving it.

The 5 Factors That Determine Your Credit Score

1. Payment History — 35%

This is the single most important factor in your score. Even one late payment can meaningfully damage your score, and the impact is worse the more recent it is. Always pay at least the minimum payment by the due date. If you’re going to be late, call the lender before the due date, not after.

2. Credit Utilization Ratio — 30%

This measures how much of your available credit you’re currently using. Keep utilization below 30%, ideally below 10% for the best scores. Even if you pay your balance in full every month, high utilization at statement close can drag down your score. Pay earlier in the billing cycle to keep the reported balance low.

3. Length of Credit History — 15%

The longer your accounts have been open, the better. This is why closing old credit cards — even ones you don’t use — can hurt your score. If you have an old card with a high interest rate, don’t close it. Put one small charge on it monthly and pay it off automatically so it stays active.

4. Credit Mix — 10%

Lenders like to see that you can manage different types of credit responsibly: revolving credit (credit cards), installment credit (mortgages, car loans, personal loans), and consumer finance accounts. Having both a credit card and an installment loan demonstrates breadth of credit management.

5. New Credit Inquiries — 10%

Every credit application triggers a hard inquiry, temporarily lowering your score. One or two per year is negligible. Several in quick succession signals financial trouble to scoring models. Exception: multiple mortgage or auto loan inquiries within 14–45 days count as a single inquiry.

What Score Do You Need?

• 800–850: Exceptional — best rates available
• 740–799: Very Good — competitive rates on most products
• 670–739: Good — approved for most credit at reasonable rates
• 580–669: Fair — approved but rates will be higher
• Below 580: Poor — start with secured cards and credit-builder loans

Aim for 700 as a minimum for significant credit applications. Above 750 puts you in the top tier for most lenders’ best offers. Both Equifax and Transunion offer credit monitoring services that show your actual score and the specific factors dragging it down.