How your credit score actually works

The five factors explained simply

Your credit score is a three-digit number between 300 and 850. Lenders use it to decide whether to approve you for anything. Loans, cards, mortgages, some apartments, even some jobs.

Higher score, more options, better rates. The system isn't random. Once you understand the formula, improving your score becomes a game you can win.

Five factors decide the score. Focus on the two biggest and the rest falls into place.

Key points

• Payment history is 35%. The biggest factor. One 30-day late payment can drop your score 60 to 110 points and stay on your report for 7 years. Pay on time, every time.
• Credit utilization is 30%. How much of your available credit you use. Keep each card under 30%, ideally under 10%.
• Length of history is 15%. Older accounts help. Never close your oldest card. Ever.
• New credit is 10%. Applications create hard inquiries. Too many in a short window signals risk. Space them at least 6 months apart.
• Credit mix is 10%. Lenders want to see you handle both revolving (cards) and installment (loans) accounts.

The 80/20 of credit

Payment history and utilization are 65% of your score. Focus on these two. Pay on time. Keep balances low. Everything else is secondary.