What a credit score is, and the 5 factors

A credit score is a three-digit summary of your credit report. It's built to answer one question for a lender: how likely is this person to pay as agreed? Once you know what goes into it, the number stops being a mystery.

Your score isn't stored on your report. It's calculated from your report at the moment someone asks for it. Most common scores run from 300 to 850, and higher is better.

FICO, the most widely used scoring company, publishes how much each factor matters for most people:

• Payment history, about 35%. Do you pay on time? Late payments, collections and charge-offs hit here.
• Amounts owed, about 30%. How much you owe, especially how much of your credit card limits you're using (utilization).
• Length of credit history, about 15%. How long your accounts have been open, on average and in total.
• New credit, about 10%. Recent applications and newly opened accounts.
• Credit mix, about 10%. Having different types of credit, like cards and installment loans.

Those percentages are general guidelines. How much each one matters for you depends on what's in your report.

• Scoring model: the formula used to turn report data into a score. FICO and VantageScore each have several versions.
• Revolving credit: credit you can use again after you pay it down, like credit cards.
• Installment credit: a loan with set payments over a set time, like a car loan.
• Utilization: your card balances divided by your card limits.

Two people each have one credit card with a $2,000 limit. Jay has never missed a payment and usually carries a $200 balance. Dee also pays on time, but keeps a $1,900 balance. Same card, same payment record, but Dee is using 95% of her limit and Jay is using 10%. Dee's "amounts owed" factor is working against her, so her score is likely to be lower. (Made-up example. Real scores depend on everything in the report.)

• The two biggest factors, payment history and amounts owed, make up about two-thirds of a FICO score. That's usually where the biggest opportunities are.
• Your score can change month to month as balances report, even if nothing else changes.
• Anyone who promises a specific score jump is guessing. The math depends on your whole report.

Take one of your reports and write the five factors down the side of a page. Next to each one, write what your report shows: any late payments, your card balances and limits, your oldest account, your recent applications, and the types of credit you have. You'll see which factors are helping you and which ones need work.

Educational information only. Not legal, financial, investment or tax advice. Results vary, and no one can guarantee credit outcomes.