How Credit Scores Work
By the TidyTally team · Last updated October 21, 2026
A credit score is a three-digit number that lenders use to estimate how likely you are to repay borrowed money. It influences whether you are approved for a mortgage, car loan or credit card, and what interest rate you are offered — which can mean tens of thousands of dollars over a lifetime. The good news is that scores follow predictable rules, and most of them are within your control.
What a credit score is
Your score is calculated from the information in your credit reports, which are maintained by the three national credit bureaus: Equifax, Experian and TransUnion. The best-known scoring model, FICO, ranges from 300 to 850. VantageScore, another widely used model, uses a similar 300 to 850 range. You actually have many scores, because different lenders use different models and versions, and each bureau's data can differ slightly.
Commonly cited FICO ranges are: 800 and above is exceptional, 740 to 799 very good, 670 to 739 good, 580 to 669 fair and below 580 poor. Lenders set their own thresholds, but higher scores generally unlock lower rates.
The five factors and their weights
FICO publishes the approximate weights of the five categories that make up its score:
Payment history (35%) — whether you pay on time. A payment reported 30 or more days late can hurt significantly, and the damage grows with lateness and recency. Amounts owed (30%) — mainly your credit utilization, the share of your revolving credit limits that you are using. Length of credit history (15%) — the age of your oldest account and the average age of your accounts. New credit (10%) — recent applications and newly opened accounts. Credit mix (10%) — the variety of account types, such as cards and installment loans.
Payment history: the most important habit
Because on-time payments carry the most weight, the single most powerful move is to never miss a due date. Set up automatic payments for at least the minimum on every account, and then pay more manually if you can. If you have already missed a payment, getting current quickly and staying current matters, and over time the impact of an old late payment fades.
Credit utilization: the fastest lever
Utilization is your card balances divided by your credit limits. Keeping it low is one of the quickest ways to improve a score because it is recalculated every time balances are reported. A commonly cited guideline is to stay below 30%, and people with the highest scores often use much less. Paying balances down before the statement closes, asking for credit limit increases or spreading purchases across cards can all lower the percentage. The Loan Payoff Calculator and our debt payoff strategies guide help you plan to pay down balances.
Length of history, new credit and mix
Older accounts help, so think twice before closing your oldest card, especially one with no annual fee. Opening several accounts in a short time can lower your score temporarily because each application can trigger a hard inquiry and lowers the average account age. Checking your own score or credit report is a soft inquiry and does not hurt your score. Credit mix matters less than people think, so do not take a loan you do not need to improve it.
How to check your reports and fix errors
You are entitled to free credit reports from each of the three bureaus, available through AnnualCreditReport.com — the only site authorized by federal law for this. Review them for accounts you do not recognize, incorrect late payments or wrong balances. If you find an error, dispute it with the bureau and the company that reported it; the bureau generally must investigate and respond. Many banks and card issuers also offer free score monitoring.
Why the score matters for your money
A higher score typically qualifies you for lower interest rates. On a long loan like a mortgage, even a fraction of a percentage point changes your payment and the total interest — which you can see by changing the rate in the Mortgage Calculator or the Car Loan Calculator. Scores can also affect renting an apartment, some insurance pricing (where allowed) and utility deposits.
Frequently asked questions
What is a good credit score?
Under the commonly cited FICO ranges, 670 to 739 is considered good, 740 to 799 very good and 800 and above exceptional. Lenders set their own cutoffs for the best rates.
Does checking my own credit hurt my score?
No. Checking your own reports or scores is a soft inquiry and does not affect your score. Hard inquiries happen when a lender checks your credit because you applied for new credit.
How long do negative items stay on my credit report?
Most negative information, such as late payments and collections, can remain for up to seven years, while some bankruptcies can remain longer. Their effect on your score generally lessens as they age.
How quickly can I improve my credit score?
Utilization changes can show up within a month or two. Rebuilding after late payments or other serious problems takes longer — usually months to years of consistent on-time payments.
Keep reading
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