Your credit score is a three-digit number between 300 and 850 that summarizes how reliably you’ve handled debt. Lenders use it to decide whether to approve you for a loan, a credit card, or a mortgage – and at what interest rate. Landlords check it before renting to you. Some employers pull it before hiring. Insurance companies use versions of it to set your premiums.
It’s one of the most consequential numbers in your financial life, and most people have only a vague idea of how it’s actually determined.
Here’s how it works.
Where Credit Scores Come From
There are several credit scoring models, but the one that matters most is the FICO score. Created by the Fair Isaac Corporation, FICO scores are used in over 90% of lending decisions in the United States. When a lender says they’re pulling your credit, they almost certainly mean your FICO score.
Your FICO score is calculated from information in your credit report – a detailed record of your borrowing history maintained by the three major credit bureaus: Equifax, Experian, and TransUnion. You have three credit reports, one from each bureau, and your score can vary slightly between them because not all lenders report to all three bureaus.
You’re entitled to one free credit report from each bureau every year at annualcreditreport.com. This is the only federally authorized source – everything else is a third party.
The Five Factors That Determine Your Score
FICO calculates your score using five categories, each weighted differently.
Payment history accounts for 35% of your score – the single largest factor. It tracks whether you’ve paid your bills on time. One missed payment can drop your score significantly, and the damage is worse the more recent the missed payment. A payment 30 days late hurts less than one 90 days late. Bankruptcies and accounts sent to collections live here too and can stay on your report for seven to ten years.
Credit utilization accounts for 30%. This is the ratio of your current credit card balances to your total credit limits. If you have a $10,000 credit limit across all your cards and you’re carrying $3,000 in balances, your utilization is 30%. Most scoring experts recommend keeping utilization below 30%, and ideally below 10% for the best scores. This factor responds quickly – pay down your balances and your score can improve within a billing cycle.
Length of credit history accounts for 15%. Longer is better. This includes the age of your oldest account, your newest account, and the average age of all your accounts. This is why closing old credit cards can hurt your score even if you’re not using them – it shortens your average account age.
Credit mix accounts for 10%. Lenders like to see that you can handle different types of credit responsibly – credit cards, installment loans, auto loans, mortgages. You don’t need one of everything, but a healthy mix helps. Don’t open accounts just to improve your mix though – the benefit rarely outweighs the cost.
New credit accounts for 10%. Every time you apply for credit, the lender does a hard inquiry on your report, which temporarily lowers your score by a small amount. Multiple applications in a short period signal financial stress to lenders. Rate shopping for a mortgage or auto loan is treated more favorably – multiple inquiries for the same type of loan within a short window are often counted as a single inquiry.
What the Numbers Actually Mean
FICO scores range from 300 to 850. Here’s how lenders generally interpret the ranges:
800-850 is exceptional. You’ll qualify for the best rates available on any loan product.
740-799 is very good. You’ll get excellent rates and approval on virtually everything.
670-739 is good. You’re in the range most lenders consider acceptable, though not at the best rates.
580-669 is fair. You may qualify for some products but will pay higher rates and face more rejections.
Below 580 is poor. Most traditional lenders will decline applications, and you’ll likely need secured products or credit-builder loans to start rebuilding.
The national average FICO score as of 2025 is around 717, which puts most Americans in the good range.
What Doesn’t Affect Your Credit Score
A few things people commonly assume matter but don’t:
Your income has no effect on your credit score. A high earner with poor payment history has a worse score than a lower earner who always pays on time.
Checking your own credit doesn’t hurt it. When you check your own score – called a soft inquiry – it has zero impact. Only hard inquiries from lenders applying for credit affect your score.
Your age, race, gender, marital status, and where you live are not factors in FICO scoring. These are legally prohibited from being used in credit decisions.
Debit card usage doesn’t appear on your credit report at all. Using a debit card, no matter how responsibly, does nothing for your credit score.
How Quickly Can Your Score Change?
Credit scores update when your lenders report new information to the bureaus, which typically happens once a month. Some changes are fast – paying down a large credit card balance can improve your utilization and show up within a billing cycle. Others take time – building a longer credit history or recovering from a missed payment requires months or years of consistent positive behavior.
The most important thing to understand is that your credit score is not fixed. It’s a snapshot of your credit behavior at a specific point in time, and it responds to what you do. Good habits consistently applied will move it in the right direction.
The Bottom Line
Your credit score is determined by five factors: payment history (35%), credit utilization (30%), length of credit history (15%), credit mix (10%), and new credit (10%). Pay on time, keep your balances low relative to your limits, and don’t open or close accounts unnecessarily.
Check your credit reports for free at annualcreditreport.com and your FICO score at myfico.com. Knowing where you stand is the first step to improving it.
Frequently Asked Questions
A FICO score of 670 or above is generally considered good, 740 and above is very good, and 800 and above is exceptional. The national average is around 717. Most lenders will approve applications in the good range, though the best interest rates typically require 740 or higher.
Your credit score updates whenever your lenders report new information to the credit bureaus, which typically happens once a month. This means changes in your balance, payment status, or new accounts can affect your score within 30-60 days of the activity occurring.
No – checking your own credit score is called a soft inquiry and has zero impact on your score. Only hard inquiries from lenders when you apply for credit can temporarily lower your score, typically by a small amount. You can check your own score as often as you want without any negative effect.
Most negative information including late payments, collections, and charge-offs stays on your credit report for seven years from the date of the original delinquency. Bankruptcies can remain for up to ten years depending on the type. The good news is that the impact of negative items diminishes over time as you build positive history on top of them.
The fastest single action is paying down credit card balances to reduce your utilization ratio, since this factor updates monthly and accounts for 30% of your score. Beyond that, making sure all payments are on time going forward is the most impactful long-term move. There are no legitimate shortcuts – anyone promising to instantly fix your credit for a fee is a scam.