How a credit score works
A credit score starts with your credit reports. The three nationwide credit bureaus, Equifax, Experian and TransUnion, collect records from lenders: your accounts, balances, credit limits, payment history, recent applications, and negative events such as collections, foreclosures and bankruptcies. A scoring model, a statistical formula, turns one bureau’s report into a number ranking how likely you are to repay on time.
You do not have just one credit score. Each model, bureau and date can produce a different number. FICO Score 8 is the version lenders use most widely, mortgage lenders have long used older versions (FICO Score 2, 4 and 5, one per bureau), and auto lenders and card issuers can use industry-specific FICO scores that run from 250 to 900. VantageScore is the main alternative model. A gap of a few points between scores is normal; a large gap between bureaus can point to an error or an account reported to only one of them.
What a score leaves out matters as much as what it includes. FICO Scores do not consider your salary, job, age, where you live, or the interest rate on any account. That is why lenders pair the score with your debt-to-income ratio, which tests whether your income can carry another payment. It is also why your payoff order, whether the debt avalanche or the debt snowball, does not move the score by itself: the model sees balances and payments, not rates.
What goes into a FICO Score
FICO publishes the general weight of each of its five categories. The weights describe the population as a whole, not a fixed recipe: FICO notes that their importance varies with each credit profile, so a short history is scored differently from a long one.
Amounts owed is the category most people can move fastest. For cards, the key measure is the credit utilization ratio, the share of your revolving limits you are using (see the formula below). High utilization reads as a sign of stretched finances, low utilization helps, and FICO says a low ratio can score better than using none of your available credit at all. FICO publishes no cutoff; the familiar 30% line is a rule of thumb, not part of the model. On installment loans such as a car loan or Mortgage, FICO compares what you still owe with the original amount, so paying those down counts as a good sign too.
- Payment history, 35%: whether past accounts were paid on time, and how late and how recent any misses were.
- Amounts owed, 30%: balances, especially card balances measured against their limits.
- Length of credit history, 15%: the age of your oldest and newest accounts and the average age of all of them.
- Credit mix, 10%: cards, retail accounts, installment loans and mortgages; you do not need one of each.
- New credit, 10%: recently opened accounts and applications; several new accounts in a short time add risk.
What is a good credit score?
On the base FICO scale, 670 and above is generally considered good, 740 and above very good, and 800 and above exceptional (see the table). Good enough depends on the loan: each lender sets its own cutoffs, and approval may need far less than the score that earns its best rate. Other models draw their own bands, so compare a number only with the ranges of the model that produced it.
The score matters through access and price. A higher score can mean approval where a lower one is declined, a lower annual percentage rate, a higher credit limit, a smaller deposit or cheaper mortgage insurance. Scores are also used in tenant screening and insurance decisions. Because a borrowing cost repeats every month for years, a difference in rate matters far more on a 30-year home loan than on a store card, so it pays to check your reports well before applying for a mortgage or refinancing one.
Credit score rules and changes to know in 2026
Mortgage scoring is changing. On July 8, 2025, the Federal Housing Finance Agency (FHFA) announced a policy letting lenders choose either Classic FICO or VantageScore 4.0 for loans sold to Fannie Mae and Freddie Mac, still delivered through reports from all three bureaus. FHFA announced the implementation of VantageScore 4.0 on April 22, 2026, and on September 9, 2026, Fannie Mae and Freddie Mac opened it to every approved lender without prior written approval. Classic FICO remains approved; FHFA expects to retire it eventually but has announced no date.
The consumer rules below are steadier. They come from the Fair Credit Reporting Act, the credit bureaus and FICO’s own published scoring rules:
- Free reports: each of the three bureaus lets you check your report free once a week at AnnualCreditReport.com, a program they have made permanent.
- How long negatives last: most adverse items, including late payments and collections, can be reported for seven years, and bankruptcies for 10, with exceptions for some large credit, insurance and job checks.
- Hard inquiries stay on a report for up to two years but affect FICO Scores for only one, and one extra inquiry usually costs fewer than five points.
- Rate shopping: newer FICO versions count mortgage, auto and student loan inquiries within any 45-day span as one (older versions use 14 days) and ignore those made in the 30 days before scoring.
- Checking your own score is a soft inquiry and does not lower it.
How to improve your credit score
Most repairs take time rather than tricks, and the weights show where to start. Payment history counts most, so the surest protection is never missing a due date; an automatic payment of at least the minimum guards that category even in a hectic month. Next, pay card balances down to lower utilization. Then let accounts age, apply for new credit only when you need it, and dispute any error you find with both the credit bureau and the company that reported it. Common mistakes that undo the work:
- Closing an old, unused card. Its limit leaves the utilization math, so the same balances use a larger share of your remaining credit.
- Carrying a balance to build credit. A card used lightly and paid in full shows the same activity without the interest.
- Opening several cards at once, as travel hacking can tempt you to. Each application usually brings a hard inquiry, and new accounts lower the average age of your credit.
- Rate shopping for months. Keep mortgage or auto quotes within a few weeks so the inquiries count as one.
- Checking only one report. An error in one bureau’s file shows up only in scores built from that file, so review all three.
- Paying off cards with no cushion. Without an emergency fund, the next surprise bill lands back on a card.
Illustrative numbers
Credit utilization on three cards, before and after two common moves
- Total revolving balances
- What you owe on credit cards and other revolving lines, as reported to the bureaus
- Total revolving credit limits
- The combined credit limits on those same accounts
FICO publishes no cutoff; lower utilization generally helps, and a little use can score better than none.
Card limits: $5,000 + $10,000 + $5,000$20,000 of available credit
Balances: $1,500 + $2,000 + $0$3,500 owed
Utilization today: $3,500 ÷ $20,00017.5%
Close the unused $5,000 card: $3,500 ÷ $15,00023.3%
Instead pay $2,000 off: $1,500 ÷ $20,0007.5%
Closing the unused card raises utilization by almost six percentage points without any new borrowing, while paying $2,000 down cuts it to less than half its starting level. Paying card balances down, whatever payoff order you choose, is the most direct way to improve the amounts-owed category.
At a glance
FICO Score ranges and how FICO describes them
| FICO Score | Rating | Compared with U.S. consumers |
|---|---|---|
| Below 580 | Poor | Well below the average score |
| 580–669 | Fair | Below the average |
| 670–739 | Good | Near or slightly above the average |
| 740–799 | Very good | Above the average |
| 800–850 | Exceptional | Well above the average |
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Credit Score FAQs
What is the difference between a credit report and a credit score?
A credit report is the record: your accounts, balances, limits, payment history, inquiries and negative items, as one bureau holds them. A credit score is a number a scoring model calculates from one report at one moment to predict how likely you are to repay. Because every score is built from a report, an error in the report flows into the score, which is why checking your reports comes before any attempt to fix a score.
Does checking my credit score lower it?
No. Looking at your own score or report is a soft inquiry, which lenders cannot see and which has no effect on your score. Hard inquiries happen when you apply for credit and a lender pulls your report. For most people one extra hard inquiry takes fewer than five points off a FICO Score, it counts toward the score for one year, and it stays visible on the report for up to two.
Does my income affect my credit score?
No. FICO Scores do not consider your salary, occupation, employer or employment history. Lenders weigh income separately, most often through your debt-to-income ratio, so a high earner with late payments can have a low score while a modest earner who always pays on time can have an excellent one. A strong score and a manageable ratio are two separate tests, and most loans require both.
How long do late payments stay on a credit report?
Under the Fair Credit Reporting Act, late payments and most other negative items, including collection accounts, can stay on your report for seven years, and a bankruptcy for up to 10. Scoring models weigh how recent a negative event is, so its effect fades as it ages and as newer on-time history builds up. Recovery starts long before the item drops off.
What is the difference between FICO and VantageScore?
Both are scoring models that turn a credit bureau report into a number predicting repayment. Each uses its own formula, so the same report can produce different FICO and VantageScore numbers, and a score means something only against the ranges of its own model. FICO Score 8 is the version lenders use most widely. For mortgages sold to Fannie Mae and Freddie Mac, lenders can now choose Classic FICO or VantageScore 4.0.