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How Credit Scores Work: What Goes Into the Number and How to Improve It

A credit score condenses your borrowing history into one number that lenders use to price loans. Here is what feeds it, what does not, and which habits move it most.

By Wells Love Editorial Desk · October 25, 2026 · 8 min read

A credit score is a number that estimates how likely you are to repay borrowed money. Lenders, landlords, insurers and some employers use it to decide whether to approve you and what price to charge. A higher score generally means cheaper credit, so a difference of a few dozen points can change the cost of a car loan or mortgage by thousands over its life.

This guide explains what the number is built from, how the main scoring models weigh each factor, and which habits help or hurt. Rules differ by country, so the examples below follow the widely documented United States FICO model, with notes on where other systems differ.

Credit report versus credit score

The credit report is the record: your accounts, balances, payment history, past enquiries and public records, collected by credit bureaus from lenders. The score is a calculation run on that record. You have many scores rather than one, because different bureaus and different models (FICO, VantageScore and lender-specific versions) can produce slightly different results from the same data.

In the United States, FICO scores typically range from 300 to 850. Lenders often group them into bands from poor to excellent, but each lender sets its own cutoffs, so a score that qualifies for one product may not qualify for another.

The five factors behind a FICO score

• Payment history (about 35%). Whether you pay on time. A single payment more than 30 days late can hurt, and the damage grows with how late and how recent it is.
• Amounts owed (about 30%). Mainly credit utilisation, meaning the balance on revolving accounts such as credit cards compared with the limit. Lower utilisation generally helps.
• Length of credit history (about 15%). The age of your oldest account and the average age of all accounts.
• New credit (about 10%). Recent applications and newly opened accounts. Several hard enquiries in a short time can signal risk.
• Credit mix (about 10%). The variety of accounts, such as cards and instalment loans. It matters least and is not a reason to borrow unnecessarily.

The percentages are FICO's published approximations for the general population and the exact weighting varies between individuals. Other models, including VantageScore, use similar ingredients with different emphasis.

What does not go into the score

Scoring models in the United States do not use your income, savings, employment history, age, race, religion, marital status or where you live. Lenders may look at income separately when deciding whether you can afford a loan, but it is not part of the score itself. Checking your own score or report is a "soft" enquiry and does not reduce it.

A worked example of utilisation

Suppose you hold two cards with a combined limit of $10,000 and carry $4,000 in balances. Your utilisation is 40%. Paying the balances down to $1,000 before the statement closes brings it to 10%, which most scoring models view more favourably. The reverse also holds: closing an old card removes its limit from the calculation, which can push utilisation up even though your spending has not changed. The figures are hypothetical and illustrate direction, not an exact change in points.

Habits that help

• Pay at least the minimum on every account by the due date, ideally with automatic payments.
• Keep card balances low relative to limits and pay in full when you can.
• Avoid opening several accounts at once, especially if you plan to apply for a mortgage soon.
• Keep older accounts open when they carry no fee, because age of history counts.
• Build a history gradually if you are new to credit, for example with a low-limit card you pay off monthly.

Habits that hurt

• Missing payments or letting accounts go to collections.
• Maxing out cards, even if you repay on time each month.
• Co-signing loans without understanding that late payments will appear on your own report too.
• Paying companies that promise to "erase" accurate negative items. Accurate information generally stays on a report for a set period, often up to seven years for most negative items in the United States.

How to check and fix errors

In the United States you can obtain free reports from the three national bureaus through the official site run for that purpose, and you can dispute inaccurate items directly with the bureau and the lender. Include documents that support your case and keep copies of everything you send. Outside the United States, check your national regulator or consumer agency, because rules on access, scoring and retention differ widely. In the United Kingdom, for example, lenders use agency reports from several providers rather than a single universal score.

Building a strong score is mostly about consistency over time rather than tricks. Pay on time, borrow only what you can repay, and review your report once a year. This article is general education, not personal financial advice, and your situation may call for guidance from a qualified adviser.

Sources and further reading

• Consumer Financial Protection Bureau: Credit reports and scores
• myFICO: What is in your credit score
• AnnualCreditReport.com: free reports from the U.S. national bureaus
• Federal Trade Commission: consumer credit guidance

This article is for information and education only and is not investment, tax or legal advice. Figures, rules and dates change; verify details with official sources before acting. See our Financial Disclaimer and Editorial Policy. Spotted an error? Tell us.