How do credit scores work?
A credit score, usually 300 to 850, sums up your credit reports, and paying on time and low utilization matter most.
New to this?
A credit score is a three-digit number, usually 300 to 850, that tells lenders how likely you are to repay borrowed money. It is figured from your credit report, a record of your loans and cards. FICO is the most common scoring company. Anyone who has borrowed has one, and a higher score means easier approvals and lower interest rates.
Read first
Myth
Checking my own credit score will lower it.
Truth
Checking your own score is a soft inquiry and never hurts it. What moves it most is paying on time and using less of your limits. Priya's utilization fell from 30% to 14% with one payment.
Worth memorizing
- 1
Payment history is 35% of a FICO score.
Amounts owed is 30%, length of history 15%, new credit 10% and credit mix 10%. These are FICO's general weights.
- 2
Utilization is balances divided by limits.
Priya's $1,500 on $5,000 of limits is 30%. Paying down $800 cut it to $700 ÷ $5,000, or 14%.
- 3
Checking your own credit does not hurt it.
Looking at your own reports or score is a soft inquiry and does not lower your score.
If you only do one thing, never miss a payment. Set autopay for at least the minimum on every card and loan. Payment history is 35% of a FICO score, the biggest single piece.
Do this today
Go to AnnualCreditReport.com and pull your report from one of the three bureaus. Check every account and every late payment. Then write down each card's balance and limit and work out your utilization, overall and card by card.
Practice
1 of 3
Which factor carries the most weight in a FICO score?
Payment history is 35% of a FICO score in FICO's published weights, the largest of the five. Amounts owed is next at 30%.
2 of 3
You owe $900 on cards with a total limit of $3,000. What is your utilization?
$900 ÷ $3,000 = 0.30, or 30%. Divide total balances by total limits.
3 of 3
Which of these is a soft inquiry that does not affect your score?
Checking your own credit is always a soft inquiry. Applying for new credit usually creates a hard inquiry, a lender's check that can lower your score a little.
Tips
Pay down your fullest card first
Scoring models look at each card as well as the total. Priya put $800 on her 60% card and brought it to 20%.
Pay before the statement closes
Balances are usually reported around the statement closing date, so paying a few days early lets the lower balance be what gets reported.
Keep old no-fee cards open
Closing a card removes its limit from your utilization math. Priya's $400 balance is 8% of $5,000 but would be 20% of $2,000.
Pull your reports for free
Get your reports free weekly from each of the three bureaus at AnnualCreditReport.com. Check every account and late payment for mistakes.
A worked example: lowering utilization on two cards
Priya, 26, has two credit cards and $800 left from a tax refund. She wants to see what paying down her cards does to her utilization.
- Priya's balances are $1,200 + $300 = $1,500 on $5,000 of limits. Utilization is $1,500 ÷ $5,000 = 30%.
- She puts the $800 on card A, which was at 60%. Card A drops to $400 ÷ $2,000 = 20%, and overall to $700 ÷ $5,000 = 14%.
- She pays a few days before card A's statement closing date, so the lower balance is what gets reported.
- Card A balance+$1,200
- Card B balance+$300
- Total balances=$1,500
- Total limits ($2,000 + $3,000)$5,000
- Utilization now ($1,500 ÷ $5,000)30%
- Tax refund paid to card A−$800
- New total balances=$700
- Utilization after ($700 ÷ $5,000)14%
Reference
Credit utilization at different balances on a $5,000 total limit
| Balance | Utilization on a $5,000 limit |
|---|---|
| $250 | 5% |
| $500 | 10% |
| $1,000 | 20% |
| $1,500 | 30% |
| $2,500 | 50% |
| $4,500 | 90% |
Common mistakes
Closing your oldest card
Closing a no-fee card removes its limit from your utilization math and, over time, can shorten your credit history. If it costs nothing to keep, use it for one small bill and pay it in full.
Applying for several cards at once
Each application usually means a hard inquiry, and several new accounts at once can lower your score and your average account age. Apply only for credit you need, and space applications out.
Paying for reports you can get free
You don't need a paid service to see your reports. The official free site gives you all three, and you can also place a free credit freeze at each bureau to protect against identity theft.
Going deeper
A credit score is a number, usually from 300 to 850, that sums up how you have handled credit, built from the information in your credit reports. Paying on time and using a small share of your credit limits matter most, and both are things you can improve starting this month.
Five factors make up a FICO score
Payment history is 35%, amounts owed is 30%, length of credit history is 15%, new credit is 10% and credit mix is 10%. These are the general weights FICO publishes for the population as a whole. Your own mix can differ.
Your score comes from your reports
Scores are calculated from the data in your credit reports at the three national credit bureaus. If a report has a mistake, your score can be wrong too, so the reports are the place to start.
Utilization is a ratio you control
Credit utilization is your card balances divided by your card limits. A lower share is better, and because it is based on recent balances, paying cards down can show up within a month or two.
Checking your own credit does not hurt it
Looking at your own reports or score is a soft inquiry and does not affect your score. You can get your reports free weekly from each of the three bureaus at AnnualCreditReport.com.
Scores and reports are different things
A credit report is a record of your credit accounts: who you owe, how much, your limits, whether you paid on time, and any accounts in collections. In the US, three national credit bureaus each keep their own report on you, and they don't always match.
A credit score is a number calculated from one of those reports at a moment in time. There are many scoring models, including FICO and VantageScore, and several versions of each. That is why the score from your bank app may not match the one a lender pulls. The same habits raise all of them.
The five factors and their weights
Payment history (35%) asks whether you paid your bills on time. Late payments of 30 days or more, collections and bankruptcies hurt here. Recent problems count more than old ones.
Amounts owed (30%) looks at how much you owe compared with your limits, mainly on credit cards. This is where utilization lives. Paying installment loans down also helps a little.
Length of credit history (15%) looks at the age of your oldest account, your newest account and the average of all of them. Time is the only fix, which is one reason to keep old no-fee cards open.
New credit (10%) counts recent applications and newly opened accounts. Several new accounts in a short time can signal risk. Credit mix (10%) rewards having handled different types of credit, such as cards and an installment loan. It is never worth taking on a loan just to improve your mix.
How credit utilization works
Utilization is your total card balances divided by your total card limits, shown as a percentage. Scoring models look at it overall and card by card. A card that is close to its limit can weigh on your score even if your overall share is low.
There is no single magic number, but lower is better. Many lenders and educators suggest keeping it under 30%, and people with the highest scores tend to use much less. The balance that counts is usually the one on your statement, so paying a card down before the statement closes lowers the figure that gets reported.
Utilization has no memory in most scoring models. Once a lower balance is reported, the score reflects it. That makes it the fastest factor to improve, unlike a late payment, which can stay on your report for up to seven years.
Hard inquiries and soft inquiries
A hard inquiry happens when you apply for credit and a lender pulls your report to decide. It can lower your score by a few points, and it stays on your report for about two years, though its effect fades sooner.
A soft inquiry happens when you check your own credit, when a company you already do business with reviews your account, or when you get a prequalified offer. Soft inquiries don't affect your score.
If you are shopping for one mortgage, auto loan or student loan, scoring models usually treat several inquiries made within a short window as one. Do your rate shopping within a couple of weeks to keep the impact small.
Checking your reports for free
In the US, you can get your credit reports free weekly from each of the three bureaus at AnnualCreditReport.com. That is the official site set up under federal law. Other sites that say they offer free reports may try to sell you something.
Read each report line by line. Look for accounts you don't recognize, late payments you made on time, wrong balances and debts that are too old to still be listed. If you find an error, you can dispute it with the credit bureau and with the company that reported it.
Questions people ask
What is a good credit score?
Each lender sets its own cutoffs, so there is no single answer. On the common 300 to 850 scale, higher scores generally get approved more often and at lower rates. Focus on the habits behind the number: on-time payments and low balances.
How long does it take to build credit from nothing?
A FICO score generally needs at least one account that has been open for six months or more and recently reported to a bureau. A secured card or being added as an authorized user on a trusted person's card are common ways to start.
Does paying off a collection raise my score?
It depends on the scoring model. Some newer models ignore paid collections, while older ones still count them. Paying it off can still help with lenders who read the full report, and it stops further collection activity.
Why is my credit score different on different sites?
Sites may use different scoring models, different versions of a model, or a report from a different bureau, and they may update on different days. Small differences are normal. Watch the trend over several months instead of any one number.
Printable worksheet with answer key, free for classrooms. Lesson plan for this unit.
Sources
- myFICO: What's in my FICO Scores?
- CFPB: What is a credit score?
- CFPB: What is a credit inquiry?
- CFPB: Credit reports and scores
- FTC: Free credit reports
- FTC: Understanding your credit
Updated October 1, 2026. General education, not personalized financial, tax or legal advice. Figures are examples. Check current rates and limits before you act.
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