How Credit Scores Work
Your credit score affects loans, mortgages, renting and even some job applications. Learn what actually moves it, and what's just myth. (Based on the US FICO system.)
What a credit score is
A credit score is a number, usually from 300 to 850 in the US, that estimates how likely you are to repay borrowed money on time. Lenders use it to decide whether to lend to you and at what interest rate.
| FICO score | Rating |
|---|---|
| 800–850 | Exceptional |
| 740–799 | Very good |
| 670–739 | Good |
| 580–669 | Fair |
| 300–579 | Poor |
It's calculated from your credit report: the history of your loans and credit cards held by the three bureaus, Equifax, Experian and TransUnion.
The five things that make up your score
| Factor | Weight | What it means |
|---|---|---|
| Payment history | 35% | Do you pay on time? Late payments hurt most. |
| Amounts owed | 30% | How much of your credit limits you're using (utilisation). |
| Length of history | 15% | How long your accounts have been open. |
| New credit | 10% | Recent applications and new accounts. |
| Credit mix | 10% | Having different types, like a card and a loan. |
Check your report for free
- Get your full reports free from all three bureaus at AnnualCreditReport.com, the official site. Free weekly reports are available.
- Many banks and credit card apps show your score for free.
- Checking your own score never lowers it (a “soft” check).
Spot an error? Wrong late payments or accounts you don't recognise can be disputed with the bureau. Unknown accounts may also be a sign of identity theft.
How to improve your score
- Pay every bill on time. Set up automatic minimum payments as a safety net.
- Keep utilisation low: under 30%, ideally under 10%. Paying the card before the statement date helps.
- Keep old cards open, even if you rarely use them, to keep your history long.
- Apply for new credit sparingly. Each application can cause a small, temporary dip.
Myth: you don't need to carry a balance or pay interest to build credit. Paying in full every month is best.
General information about the US system, not financial advice. Other countries score credit differently.