Understanding Credit Score

A credit score is a number, usually from 300 to 850, that estimates how likely you are to pay your debts on time. It’s calculated by a formula from the information in one of your credit reports. The two big scoring companies are FICO and VantageScore, and while their formulas differ, both reward the same things: paying on time, keeping card balances low, and having a long, steady credit history.

The five FICO factors

FICO, the score most lenders use, groups the information on your report into five categories:

Factor	Approximate weight	What it looks at
Payment history	35%	On-time payments, late payments, collections, bankruptcies
Amounts owed	30%	Balances, especially card balances relative to limits (utilization)
Length of credit history	15%	Age of your oldest account and the average age of all accounts
New credit	10%	Recent applications and newly opened accounts
Credit mix	10%	Having different types of credit, such as cards and installment loans

The weights are a general guide. For someone with a short history, for example, the categories can count differently.

What you can change quickly, and what takes time

Fast (one to two months): utilization. Pay down card balances before your statement closes and the new, lower balance gets reported. Your score can respond as soon as the next update. Utilization has no memory; last year’s high balances don’t count once they’re paid down.

Medium (months): new credit. A hard inquiry usually costs fewer than five points and stops counting toward FICO scores after 12 months. New accounts weigh less as they age.

Slow (years): payment history and length of history. A 30-day late payment stays on your report for seven years, though its effect fades over time. There’s no shortcut for age; the best you can do is keep old accounts open and avoid new missed payments.

Error correction (weeks): disputes. If a negative item is wrong, disputing it can remove it within about a month. How to Dispute a Credit Report Error explains the process.

FICO vs. VantageScore

Both use a 300–850 range for their main scores and look at the same kinds of information, but they weigh it a little differently and handle some details differently. For example, newer versions of both ignore paid collections, while the widely used FICO Score 8 doesn’t.

There are also many versions of each. Credit card issuers often use FICO 8; mortgage lenders have long used older “Classic” FICO versions. Under a policy announced in 2025, Fannie Mae and Freddie Mac now let lenders use VantageScore 4.0 as well as Classic FICO for the mortgages they buy, and FICO 10T is approved for future use. That’s why the score in your banking app may not match the one a lender pulls. Why Your Credit Scores Differ Across Apps and Lenders explains.

What isn’t in your score

Your income, savings, job, age, race, religion, gender, marital status and where you live aren’t part of a credit score. Neither are checking your own credit, debit card use, or your bank balance. Lenders may consider income and debts separately when you apply. Creditworthiness: What Lenders Look at Besides Your Score covers that side.

Why it matters

Your score affects whether you’re approved and the rate you’re offered on cards, car loans and mortgages. It can also affect apartment applications, utility deposits, and in most states, insurance pricing through a related credit-based insurance score. On a large, long loan like a mortgage, even a small difference in rate adds up to a lot of money.

For a practical plan, see How to Raise Your Credit Score, and to see where you stand, How to Check Your Credit Score for Free.

Sources

• myFICO: What’s in your credit score
• myFICO: FICO Score versions
• FHFA: Credit score requirements for Fannie Mae and Freddie Mac
• FTC: Credit scores

This article is for educational purposes and is not financial advice.