What Makes Up Your Credit Score and How to Improve It

One score, many versions

People often talk about "your" credit score as if there were only one, but there are many. FICO is the best known scoring company, and it produces several versions, while other companies produce their own scores too. Lenders choose which score to use, so the number you see on a free app may not match the one a mortgage lender pulls.

That is not a reason to worry. The underlying behaviors that raise or lower every major score are broadly the same: pay on time, keep balances low relative to your limits, avoid unnecessary applications and let your accounts age. The sections below follow FICO's published breakdown.

Payment history: 35%

Payment history is the largest factor. It looks at whether you have paid past accounts on time. FICO calls it the strongest predictor of whether you will repay debts as agreed.

Late payments, collections, accounts in default and bankruptcies are the kinds of events that hurt here. Paying every bill on time is the single most valuable habit you can build. If you tend to forget due dates, set up automatic payments for at least the minimum, and keep enough in your account to cover it.

Amounts owed: 30%

This category looks at how much debt you carry in total and how much of your available credit you are using. High utilization, meaning balances that are close to your credit limits, can suggest you are stretched thin.

Utilization is the share of your revolving credit limit that you are using. For example, a $2,000 balance on a card with a $5,000 limit is 40% utilization. Paying balances down, asking for a higher limit (without spending more) and spreading balances across cards can all lower it. Because most card issuers report balances once a month, paying down a balance before your statement closes can also help.

Length of credit history: 15%

This factor considers the age of your oldest and newest accounts, your average account age and how long it has been since you used certain accounts. A longer history generally helps.

There is no shortcut here, but you can avoid hurting yourself. Closing your oldest card may shorten your history over time, so if an old card has no annual fee, keeping it open with an occasional small purchase is often a sensible choice.

New credit: 10%

New credit looks at recently opened accounts and credit applications. FICO says its scores consider inquiries from the past 12 months, although inquiries stay on your report for two years.

Applying for several loans or cards in a short time can lower your score a little because it can signal that you are seeking a lot of credit. Apply when you need to, and keep your applications deliberate rather than casual.

Credit mix: 10%

Credit mix looks at the variety of credit you have, such as credit cards, retail accounts, installment loans, finance company accounts and mortgages. FICO says you do not need one of every type, and credit mix is unlikely to be a deciding factor on its own.

In other words, do not take out a loan you do not need just to diversify your credit.

A quick summary table

Here is how FICO describes the five categories.

What a score does not include

FICO says its scores do not consider factors such as your race, age, location, income or employer, or the interest rate on an account. Scores are based on your credit report. Lenders can still weigh other things in their own decisions, such as your income and employment, when deciding whether to approve you.

FICO also stresses that the weights are general and can vary from person to person, and that a single factor's effect cannot be measured without looking at your whole report.

Common worries, answered

FICO addresses several common concerns directly. A few late payments do not automatically cause major damage to a score, and a clean payment history does not guarantee a perfect score. The weights are general, so someone with a long, thin history will find the factors play out differently from someone with many accounts.

Negative items also fade. The CFPB says most negative information can generally be reported for seven years, with bankruptcies reported for up to ten. That means a bad patch in the past does not hold you back forever, especially if you build a run of on-time payments afterwards. The most useful mindset is steady improvement rather than chasing a particular number.

It also helps to remember that a score is a tool lenders use, not a measure of your worth. Two people with the same score can have very different finances, and your own budget, savings and stability matter just as much when deciding what credit you can safely take on.

How to improve your score

These steps follow directly from the five categories and tend to work for most people.

1. Get your free reports and fix errors. A mistaken late payment or an account that is not yours can be dragging your score down. See our guide to free credit reports and disputing errors.
2. Pay every bill on time, and set up automatic payments to protect your history.
3. Bring balances down, especially on cards close to their limits.
4. Avoid opening many new accounts in a short period.
5. Keep older accounts open where it makes sense.
6. Be patient. Positive changes build gradually, and negative items generally fade with time.