A credit score is a number between 300 and 850 that predicts how likely a borrower is to fall 90 days behind on a debt in the next two years. Lenders buy that prediction from scoring companies, and the number decides the interest rate on a mortgage, a car loan, and often whether an application is approved at all. The formula behind it is public in its outlines, and it rewards five specific behaviors.
The five ingredients
Payment history carries about 35 percent of the weight. It is the single biggest piece, and it answers one question: did payments arrive on time. A payment 30 days late can drop a good score by 60 to 100 points. The damage grows with time passed and number of late marks, and it stays on the report for seven years, shrinking as it ages.
Amounts owed carries about 30 percent. The measure is credit utilization: the balance reported against the limit available. Someone with $2,000 in balances across $20,000 of limits sits at 10 percent utilization, in the range scoring models treat well. The same $2,000 against $3,000 of limits sits at 67 percent and costs points, even with a perfect payment record. The statement balance is what gets reported, so paying in full after the statement closes still shows a balance that month.
Length of history carries about 15 percent, measured as the age of the oldest account and the average age of all of them. This is the part time handles. Closing a credit card from 2014 removes it from the average and shortens the visible history, which is why holding old accounts open with a small recurring charge works.
New credit carries about 10 percent. Each application for a credit score-tracked loan triggers a hard inquiry, typically worth 5 points or less, fading in importance after a year and leaving the report after two. Rate shopping for a mortgage within a focused window counts as one inquiry in most models.
Credit mix carries the last 10 percent. A file with an installment loan (car, student, mortgage) and revolving credit (cards) reads as more experience than one with only cards. Taking on a loan purely for mix rarely pays.
What the number ignores
Income and savings sit outside the formula entirely. A high earner with a thin file scores lower than a modest earner with 15 years of clean history. The score also does not know rent, utility bills, or phone payments, though services exist to add them to the report.
Where to look and what to fix
Every consumer can pull their three reports free at AnnualCreditReport.com, the site federal law designates for it. Check for accounts that belong to someone else, balances already paid, and late marks on accounts that were never actually late. Errors are common enough that the Consumer Financial Protection Bureau runs a complaint process for disputes, and the bureau’s data shows tens of thousands of people using it each year.
Disputing an error takes a letter or an online form and costs nothing. Fixing a true late payment takes time and on-time months. The good news for anyone starting late: two years of clean payments moves the number further than any single trick sold online, and no product on the market does it faster.