How Credit Scores Work: The Five Factors Behind Your FICO Score

A credit score is a three-digit number that lenders use to estimate how likely you are to repay borrowed money. It affects whether you are approved for loans and credit cards, and the interest rate you are offered. This guide covers the US FICO score, the most widely used model.

The score range

FICO scores run from 300 to 850. A general guide to the ranges:

Score	Rating
800 to 850	Exceptional
740 to 799	Very good
670 to 739	Good
580 to 669	Fair
300 to 579	Poor

Higher scores generally mean lower borrowing costs. Other models, such as VantageScore, use similar ideas but different formulas, so your scores can vary between providers.

The five factors

FICO says its scores are built from five categories, each with a different weight:

Factor	Approximate weight	What it means
Payment history	35%	Whether you pay on time
Amounts owed	30%	How much of your available credit you use (credit utilisation)
Length of credit history	15%	How long your accounts have been open
New credit	10%	Recent applications and new accounts
Credit mix	10%	The variety of credit you manage, such as cards and loans

What helps your score

• Pay every bill on time. Set up automatic payments or reminders. This is the biggest single factor.
• Keep balances low. Using a small share of your credit limits, ideally well under 30%, is generally better.
• Keep old accounts open when they have no fee, because longer history helps.
• Apply for new credit only when you need it, since each application can cause a small dip.
• Check your reports for errors. Mistakes such as accounts that are not yours can drag your score down.

Hard and soft inquiries

When you apply for credit, the lender usually does a hard inquiry, which can lower your score slightly for a short time. Checking your own score, or being pre-approved by a lender, is a soft inquiry and has no effect.

Check your credit reports

Your score is calculated from the information in your credit reports, which are held by Equifax, Experian and TransUnion. You can get your reports for free at AnnualCreditReport.com. If you find an error, dispute it in writing with the credit bureau and the company that supplied the information.

Protect your credit

A score is only useful if it reflects your own activity. Consider placing a free credit freeze to guard against identity theft. See our guide to freezing your credit.

This article is general information, not financial advice.