Your credit score affects the interest rates you pay on mortgages, auto loans, and credit cards. It can influence apartment applications and even job offers. Yet most people don't understand what actually moves their score, and waste energy on things that don't matter.
The Five Factors That Determine Your Score
FICO scores, used by 90% of , weigh these factors:
Payment History (35%): The Foundation
This is the single most important factor. One 30-day late payment can drop your score 60-110 points and stay on your report for seven years.
Action step: Set up autopay for at least the minimum payment on every account. Even if you prefer to pay manually, autopay is your safety net against accidentally missing a due date.
Credit Utilization (30%): Keep It Low
This measures how much of your available credit you're using. If you have a $10,000 credit limit and a $3,000 balance, your utilization is 30%.
The targets:
- Under 30% utilization: Generally acceptable
- Under 10% utilization: Optimal for score maximization
- 1-3% utilization: Shows activity without high balances
Utilization resets monthly. It has no memory. If you're applying for a loan soon, pay down balances a few weeks before to boost your score quickly.
Length of Credit History (15%): Time Is Your Friend
This averages the age of all your accounts. It's why you shouldn't close your oldest credit card, even if you rarely use it.
Tip: If you have a teenager, adding them as an authorized user on your oldest card (with good history) gives them a head start. They don't need to use the card. They just inherit your account age.
Credit Mix (10%): Variety Helps
Lenders like to see you can handle different types of credit: credit cards (revolving), auto loans, mortgages (installment). But don't take out loans just for mix. The effect is minor.
New Credit (10%): Apply Sparingly
Each hard inquiry (when a lender checks your credit for a loan application) can temporarily ding your score 5-10 points. Multiple inquiries for the same type of loan within 14-45 days count as one if you're rate shopping.
Common Credit Score Myths
❌ Myth: Checking your own credit hurts your score
✓ Fact: Checking your own credit is a "soft inquiry" and has zero impact. Check it regularly.
❌ Myth: You need to carry a balance to build credit
✓ Fact: Pay your statement balance in full every month. You build credit by using the card, not by paying interest.
❌ Myth: Closing old cards helps your score
✓ Fact: Closing cards reduces your available credit (hurting utilization) and can lower your average account age. Keep old cards open, even unused.
❌ Myth: Income affects your credit score
✓ Fact: Income isn't part of the calculation at all. A student making $15,000 can have a higher score than an executive making $500,000.
How to Check Your Credit
Free credit reports: AnnualCreditReport.com gives you free reports from all three bureaus (Equifax, Experian, TransUnion) weekly. Review for errors. They're common.
Free credit scores: Most banks and credit cards now show your score for free. Discover offers it to anyone, even non-customers.
Building Credit From Scratch
If you're starting with no credit history:
- Secured credit card: You deposit money as collateral, then use it like a regular card
- Credit builder loan: Small loans designed specifically to build credit
- Authorized user: Get added to a family member's card with good history
- Student cards: Easier approval for those with no credit history
With responsible use, you can build a solid score in 6-12 months.
🛠️ Recommended Tool
AnnualCreditReport.com is the only federally authorized site for free credit reports. Get your reports from all three bureaus weekly and review them for errors. Disputed mistakes can boost your score quickly.
📚 Further Reading
Consumer Financial Protection Bureau – Official government resource explaining your rights and how to dispute errors.
myFICO Education Center – Straight from the source on how FICO scores are calculated.
NerdWallet: How to Build Credit – Practical step-by-step guide for beginners.
The Zen Take
Credit scores matter, but obsessing over them is counterproductive. Once you're above 760, you qualify for the best rates on virtually everything. There's no prize for 850.
The formula for a great score is simple: pay on time (autopay everything), keep utilization low, and let time do the rest. You don't need to game the system or pay for monitoring services.
Think of your credit score as a byproduct of healthy financial habits, not a goal in itself. Manage your money well, and the score takes care of itself.