What Makes Up Your Credit Score: 5 Factors in Plain Words

What makes up a credit score: a five-part formula

A credit score is a number from 300 to 850 that a formula calculates. Looking at it, a bank decides in a second whether to lend you money. We cover what a credit score is and why banks care about it in a separate article. What makes up a credit score is no secret. FICO, the most widely used model in the US, openly names its five parts.

The formula takes its data only from your credit report. The report lists your cards, loans and every payment on them. These reports are kept by the three credit bureaus: Experian, Equifax and TransUnion. If something is not in the report, the formula does not count it.

These percentages are an average picture. FICO compares you with people who have a similar profile. So the weights are a little different for a newcomer and for an experienced borrower. VantageScore has its own weights. We explain why the two models give different numbers in our article about FICO and VantageScore.

Payment history (35%): what counts as a late payment and what doesn’t

This is the heaviest part of the formula. It asks one question: do you pay on time? All accounts are checked: credit cards, car loans, mortgages, student loans and personal loans.

• For the bureaus, a late payment is one that is 30 days late or more. If you are 5–10 days late, the bank will charge a late fee, but it usually won’t show up on your report.
• A minimum payment counts as an on-time payment. For this part, you don’t have to pay off the full balance.
• If you paid less than the minimum, the bank treats that as late too. If you don’t make up the difference within 30 days, it will go on your report.
• How late you were matters: 30, 60, 90 or 120+ days. The longer, the worse.
• How long ago it happened matters too: a late payment from three years ago weighs less than one from last year.
• This part also includes collections (debt handed over to collectors), charge-offs (debt the bank wrote off as uncollectible) and bankruptcies.

These entries don’t last forever: regular negative items drop off your report no later than 7 years after the first missed payment. Bankruptcy drops off after 7 or 10 years, depending on the type. The older the entry, the less it weighs.

For Tigran: three years without a single late payment. This part is in perfect shape, and it is the most valuable thing he has.

Debt and utilization (30%): why the percentage of your limit matters more than the debt

The formula cares not just about how much you owe, but about how much of your limits you are using. For cards, this is called utilization: a $2,000 limit with $500 on the card means 25% utilization.

• Overall utilization across all your cards.
• Utilization on each card separately: one maxed-out card hurts the picture, even if the others are empty.
• How many accounts carry a balance at all.
• How much you still owe on your loans. You borrowed $20,000 for a car and have $4,000 left: that is a good sign.

What number is good? Under 30% is normal, under 10% is excellent. The formula sees your balance as of the date the bank reported it to the bureaus. Usually that is your statement date, when your monthly statement comes out. If you pay off your card in full, but after the statement, the bureaus will still get a high balance.

People with a perfect payment history often come to us at Excalibur Credit Solutions, and their score is not going up. Often the reason is one card that is filled almost to the limit.

For Tigran: $1,700 out of $2,000 is 85%. To the formula, that signals “this person lives on a credit card.” This is the part that is pulling his score down the most right now.

Length of history (15%): how the formula counts the age of your accounts

This part looks at how long you have been using credit. There are several numbers here:

• The age of your oldest account.
• The age of your newest account.
• The average age of all your accounts.
• How recently you used each account.

What surprises newcomers the most is the average age. Say you have one card, and it is 4 years old. You open two new ones, and your average age drops from 4 years to 1 year and 4 months. That is why old accounts are so valuable: they keep your average age from dropping.

Important for immigrants: your credit history from back home does not count here. For US bureaus, your track record starts with your first account in the US.

You can borrow someone else’s account age for a while by becoming an authorized user on someone’s old card. That is the idea behind the credit boost at Excalibur: we add a client to one of our proven credit lines and keep them there through two reporting cycles, most often ahead of a particular application. While the line is on your report (about two months), the formula sees its age and limit. Then it comes off, and the effect goes away. Only your own accounts build a lasting track record. And a boost does not erase late payments.

For Tigran: his oldest account is 3 years old, and it is also his only one. To the formula, this is a young but not empty history. If the two new cards are approved, his average age will drop from 3 years to 1 year, and then it will start growing again.

New credit (10%): applications and recently opened accounts

This part looks at how actively you are looking for new money. The bank reads a lot of applications in a row as a sign that money is tight.

• How many accounts you opened recently.
• How many hard inquiries you had. These are checks of your history that a bank makes when you apply.
• How much time has passed since your last application and your last new account.

A hard inquiry stays on your report for 2 years, but FICO only counts it for the first year. We show where to find these inquiries on your report in our article What Is a Hard Inquiry.

For Tigran: two recent applications. On their own, they are not a disaster. But next to a maxed-out card, they look like “this person is looking for anywhere else to borrow.”

Types of credit (10%): what is credit mix

The formula likes it when a person can handle different types of debt. This is called credit mix. There are two main types:

• Revolving credit: credit cards and credit lines. There is a limit: you spend, pay it off, and can spend again. The payment is different every month.
• Installment credit: a car loan, a mortgage, a student loan or a personal loan. You borrow a sum once and pay it back in equal parts on a schedule.

When your history has both, it is easier for a bank to trust you. But you don’t need to take out a loan just for variety: this part weighs only 10%, and the interest will cost you more than it helps.

For Tigran: one card and no loans. This part is weak, but it doesn’t weigh much. If he gets a car loan or another loan over time, it will improve.

What doesn’t affect your credit score: income, deposits, nationality, status

This is where most of the myths are. Many people think a big salary or $30,000 in a savings account will raise their score. It won’t. The formula only sees your credit report, and there is no salary and no bank accounts in it.

Income matters not for your score, but for the bank’s decision. The bank uses the salary on your application to decide what limit to give you and whether you can afford the payment.

Rent, electricity, gas, internet and phone bills are a separate story. Landlords and utility companies usually don’t report them to the bureaus, so they are not on your report. You can add them through separate services. For example, Experian Boost adds them to your Experian report. Then some scoring models may count them, but not all. And the bank may be looking at exactly the score that doesn’t count them.

Which credit score factor changes the fastest?

Some parts of the formula change within a month, others take years.

Utilization moves the fastest. Common score versions, such as FICO 8, only see the last balance reported to the bureaus. Newer models, FICO 10T and VantageScore 4.0, look at how your balance changed over about two years. But they also like it when your debt goes down.

Tigran’s plan is this: pay down the card before the statement date so no more than $200 gets reported to the bureaus. That is 10% of the limit. Don’t submit any new applications for now. Keep paying on time, as before. There is no way to predict how many points this will give him: every profile reacts differently. But the maxed-out card will stop pulling his score down.

How to see your own five parts of the formula today:

1. Get a report from all three bureaus through one of these services: SmartCredit, IdentityIQ or MyScoreIQ.
2. Write down the limit and balance for each card. Calculate your utilization, both overall and for each card.
3. Find the age of your oldest account and estimate the average age of all your accounts.
4. Count your hard inquiries over the last 12 months.
5. Check your payment history: are there any late payments that never actually happened? Credit reports do have errors.

Seeing a credit report for the first time? Our guide how to read a credit report will help. If your score has been low for a long time and you are not sure why, take a look at our article Why Your Credit Score Might Be Low. During a review at Excalibur Credit Solutions, we go through the report the same way, part by part, and the weak spot shows up right away.