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Reviewed By:
Ashley Davison
Ashley Davison
Editor
Ashley is currently the Chief Compliance Officer for Credit Saint, previously the Chief Operating Officer. Ashley got into the Financial world by working as a Logistics Coordinator at Ernst & Young. Coming from a previous career in education, she is eager to teach the world every...
Ever wondered what that three-digit number on your credit report really means? Understanding what a credit score is, and what affects it, is the first step toward stronger financial footing.
A credit score is a three-digit number that summarizes your creditworthiness based on the information in your credit report. Lenders use it to assess the risk of extending credit. A higher score typically signals lower risk, which may mean better loan terms, lower interest rates and more financial products to choose from.
Understanding what a credit score is and what affects it gives you a clearer picture of where you stand and what may be worth addressing.
One factor that often goes unexamined is whether your credit report contains errors that may be holding your score down. In a 2013 FTC study, one in four consumers identified errors on their credit reports that might affect their credit scores.
Key Takeaways
In a 2013 FTC study, one in four consumers identified errors on their credit reports that might affect their credit scores.
A credit score is a three-digit number ranging from 300 to 850 (FICO) that lenders use to evaluate credit risk and determine loan terms.
Payment history (35%) and credit utilization (30%) are the two most heavily weighted factors in FICO Scores.
You can check your credit reports for free and dispute entries you believe are inaccurate, incomplete or unverifiable under the FCRA.
Why Your Credit Score Matters
Credit scores influence a wide range of financial outcomes, including:
Loan approvals for mortgages, auto loans and personal loans
Interest rates offered on credit products
Credit card applications
Rental applications
Insurance premium determinations
Utility service deposits
Because credit scores affect so many financial decisions, it matters to understand what drives them and whether your report accurately reflects your history.
Credit scores are calculated from several categories of information, each weighted by its relative importance to the scoring model. Here is how the FICO Score breaks down:
1. Payment History (35%)
Payment history is the single most heavily weighted factor. It reflects whether accounts have been paid on time. Late payments, collections, bankruptcies, and foreclosures can significantly affect a score. A consistent record of on-time payments, by contrast, builds a strong positive foundation over time.
2. Credit Utilization (30%)
Credit utilization measures how much of available credit is currently in use. It is expressed as a ratio. For example, a $3,000 balance on a $10,000 limit represents 30% utilization. Lower utilization ratios are generally associated with stronger scores. High utilization may signal over-reliance on credit to lenders reviewing the report.
3. Length of Credit History (15%)
The longer credit accounts have been open and active, the more data the scoring model has to work with. A longer history of responsible credit management tends to support a stronger score. Closing an older account, even an unused one, can lower your available credit, and once it eventually drops off your report, your history can look shorter.
4. Credit Mix (10%)
Scoring models consider the variety of credit types on a report. A mix of revolving accounts (such as credit cards) and installment accounts (such as mortgages or auto loans) may reflect more experience managing different forms of credit.
5. New Credit (10%)
Each formal credit application typically generates a hard inquiry on the credit report, which may cause a small, temporary score reduction. Opening several new accounts in a short period can be viewed as a signal of elevated borrowing risk by some scoring models.
How to Check Your Credit Score and Report
You can get a free copy of your credit report from each of the three major bureaus, Equifax, Experian and TransUnion, every week through AnnualCreditReport.com. Many credit card issuers and financial institutions also provide free score monitoring tools.
When reviewing a credit report, it is worth looking for:
Accuracy: All accounts, balances, and personal information reflect the consumer’s actual history.
Negative entries: Late payments, collections, or public records that may be affecting the score.
Potential errors: Entries that appear inaccurate, incomplete or unverifiable, or that don’t belong to you. You can dispute these under the Fair Credit Reporting Act (FCRA).
Under the FICO model, a score between 670 and 739 is generally considered good, 740 to 799 is very good, and 800 to 850 is exceptional. Scores below 670 may make it harder to qualify for favorable credit terms, though lender thresholds vary by product and institution.
Most negative items, including late payments and collections, may remain on a credit report for up to seven years. Certain bankruptcies may remain for up to ten years. The impact of older negative entries on a score typically diminishes over time, particularly when more recent account history is positive.
No. Checking your own credit score or report is considered a soft inquiry and does not affect the score. Hard inquiries, which occur when a lender reviews a report as part of a formal credit application, may cause a small, temporary score reduction.
Yes. Inaccurate, incomplete or unverifiable entries may hold a credit score below where it would otherwise be. Under the FCRA, you have the right to dispute such entries with the credit bureaus.
Bottom Line on What Affects Your Credit Score
A credit score is a three-digit number lenders use to judge credit risk, and it can shape loan approvals, interest rates and even rental applications.
Payment history and credit utilization carry the most weight. Check your free reports from all three bureaus, and if an entry looks inaccurate, incomplete or unverifiable, you have the right to dispute it under the FCRA.
Reviewed By:
Ashley Davison
Editor
Ashley is currently the Chief Compliance Officer for Credit Saint, previously the Chief Operating Officer. Ashley got into the Financial world by working as a Logistics Coordinator at Ernst & Young. Coming from a previous career in education, she is eager to teach the world everything she knows and learn everything that she doesn’t! Ashley is a FICO® certified professional, a Board Certified Credit Consultant, a Certified Credit Score Consultant with the Credit Consultants Association of America, UDAAP certified, and holds a Fair Credit Reporting Act (FCRA) Compliance Certificate.
