What’s Your Credit Score?

A credit score is a three-digit number that lenders and creditors use to evaluate your risk when you apply for a loan or credit card. Your score is based on the information in your credit reports, including payment history, amount of debt and the types of accounts you have.


A good credit score makes it easier to qualify for financing and can help you pay less in interest charges. Here’s how your score is calculated.

Length of Your Credit History

The length of your credit history makes up 15% of your credit score, and it’s one of the most important factors when lenders are assessing whether you can handle a loan or credit card. Lenders want to see that you’ve had a long track record of responsible credit management, so they can trust you to pay back what you owe.

Your credit report contains information about how long you’ve had each account, including the age of your oldest and newest accounts as well as the average age of all your accounts. The longer your credit history, the better your scores will be. You should avoid opening or closing new accounts, as doing so will lower your average account age and could hurt your credit score.

Other factors that influence your credit score include payment history, amount owed and credit utilization, which measures how much of your available credit you’re using on revolving accounts such as credit cards. Aiming for a credit utilization ratio of 30% or less is ideal for your credit score.

The Types of Accounts You Have

Lenders use credit scores to evaluate a potential borrower’s ability to repay loans. They also use credit reports to gather more detailed information about a borrower’s past credit behavior. Credit reports are a snapshot of a person’s credit information at a given point in time and are available from the three major consumer reporting agencies, Experian, Equifax and TransUnion.

The three main components of a credit score are payment history, how much debt you have and the types of accounts you have. Payment history accounts for 35% of a credit score, and factors such as your record of on-time payments, how far back you’ve missed a payment and the number of late payments you’ve had can impact your score. Another factor is your credit utilization, which is the percentage of your total credit limit that you’re using. Keeping balances low and avoiding overusing revolving accounts can positively affect your credit score.

Credit scoring formulas may also consider the types of accounts you have. For example, some lenders prefer to see a mix of revolving credit (like credit cards) and installment accounts (like mortgages, auto loans, personal loans or student loans). In addition, it’s generally best to avoid closing old accounts as this can shorten your credit history. Finally, some credit scoring models may weigh the number of new applications you’ve made recently, especially those that trigger what’s known as a hard inquiry on your report, which can negatively affect your score.

Recent Credit Activity

Many people see their credit scores change day-to-day and week-to-week, but these short-term changes are less important than your overall credit health. Your credit score updates throughout the month as lenders send new information to the credit reporting agencies. This can be due to a major event, such as applying for a loan or credit card, or to routine activity, such as making on-time credit card payments or decreasing your credit utilization rate.

When you apply for a loan or credit card, the lender typically gets a copy of your credit report from one of the three major credit bureaus. This is known as a hard inquiry, and it will show up on your credit report. The credit scoring model takes into account how recent the hard inquiry is, along with other factors, in order to assess your risk.

If you’re frequently opening new accounts, it may cause your credit score to lower temporarily because of the increased amounts owed (amounts you owe compared with your total credit limits). However, this can be offset by using a balance transfer credit card or paying down your existing debt. Regardless of what your credit report says, it’s important to monitor your credit reports and scores on a regular basis so you can spot errors or fraud that may be impacting your credit.

Payment History

Payment history is the single largest factor in your credit score, making up 35% of your credit score. It gives lenders a snapshot of your payment behavior and whether you’re current on credit card payments, auto loans or mortgages. Lenders look to this portion of your credit report as a way to determine whether you’ll be able to pay them back.

Late payments aren’t good for your credit, and they can damage it over time. This is particularly true if you miss a credit card payment by more than 30 days, or an installment loan like a car loan or mortgage. Missing a few days of a payment won’t have a major impact, but the more you miss a payment deadline, the higher your level of lateness.

While you can’t reverse a missed credit card payment or other late payment, you can take steps to avoid new late payments and work to lower any old ones that appear on your credit report. You can also work with your lender or credit bureau to dispute any incorrect information that may have shown up on your credit report.

Remember, the credit reporting agencies can only keep payment information on file for a certain period of time. After that, they’ll usually delete it from your credit report completely or transfer it to a derogatory collections section of your credit report.