What a Credit Score Actually Measures

A credit score is a three-digit number that predicts how likely you are to pay back money you borrow. Banks, landlords, cell phone companies, and even some employers look at it before they decide to do business with you. The number itself is not magical — it is just a summary of your borrowing history.

This guide explains what the score actually measures, in plain English. For a quick estimate of where you stand, our free credit score tool walks through the inputs.

Where the score comes from

Three big companies — Equifax, Experian, and TransUnion — collect your borrowing history and put it into a file called a credit report. Lenders then use a scoring formula on top of that report to spit out a number. The two most common formulas are:

• FICO — short for Fair Isaac Corporation, the company that invented modern credit scoring. Most lenders use some version of FICO.
• VantageScore — built by the three credit bureaus together. Many free credit score apps show this version.

Both run roughly from 300 (very risky) to 850 (very safe). The Consumer Financial Protection Bureau (CFPB) — the federal agency that supervises consumer lending — has a plain-language explainer at consumerfinance.gov.

The five things that move the score

FICO publishes the rough weight of each piece. Knowing the order matters more than the percentages.

1. Payment history (about 35%). Did you pay on time? A single payment 30 or more days late hurts more than almost anything else on this list.
2. Amounts owed (about 30%). This is mostly your credit utilization — the percentage of your credit card limits you are actually using. Lower is better.
3. Length of credit history (about 15%). How long your accounts have been open. Closing your oldest card can hurt this.
4. Credit mix (about 10%). Whether you have a healthy mix of revolving credit (cards) and installment loans (car, student, mortgage).
5. New credit (about 10%). Opening lots of new accounts in a short time looks risky.

The CFPB has a side-by-side breakdown of these categories. The takeaway: pay on time, do not max out cards, and do not open accounts you do not need.

What a "good" score looks like

There is no official cut-off, but lenders tend to group scores like this:

• 800-850 — Excellent. You will get the best advertised rates.
• 740-799 — Very good. Most loans approve at competitive rates.
• 670-739 — Good. You will qualify for most credit, sometimes at a slightly higher rate.
• 580-669 — Fair. Approvals get harder and rates are higher.
• Below 580 — Poor. You may need a co-signer or a secured card to start rebuilding.

These bands are general guidelines, not rules. A landlord, a cell phone company, and a mortgage lender may each draw the line differently. See credit score and credit report for the basic vocabulary.

What does not affect your score

A lot of things show up on your credit report or your bank app, but the FICO formula does not look at:

• Your income or job title.
• Your race, religion, or marital status.
• Where you live.
• Your bank account balance.
• A debit card.
• Looking at your own credit ("soft pull").

That last point matters. Checking your own score does not lower it. Only a "hard inquiry" from a lender deciding whether to extend credit can.

How to see your real credit reports for free

Federal law gives you the right to a free credit report from each of the three bureaus every week through one website: AnnualCreditReport.com. The CFPB and FTC both link to it. The reports do not include your score, but they show every account on file. Reviewing them once a year — and after any major life change — is the single best fraud-detection step you can take.

If you spot something wrong, you can dispute it for free directly with the bureau. The CFPB has a free dispute letter template at consumerfinance.gov.

How long bad stuff stays on your report

• Late payments: up to 7 years.
• Most collections accounts: up to 7 years.
• Chapter 7 bankruptcy: up to 10 years.
• A hard inquiry: 2 years (only counts in scoring for about 1 year).

Time helps. So does building a long stretch of on-time payments after a rough patch.

Building credit from zero

If you have never borrowed money, you do not have a score yet. Common starting points include:

• A secured credit card, where your deposit becomes your credit limit.
• Becoming an authorized user on a trusted family member's card.
• A credit-builder loan from a credit union, regulated by the National Credit Union Administration (NCUA).
• Paying student loans on time once they enter repayment.

The Federal Trade Commission (FTC) warns that any company promising to "fix" your credit fast for a fee is usually a scam. There is no legal trick that erases accurate negative items.

A note on the numbers

Numbers and rules in this article change every year — always check the latest from the IRS, CFPB, and your bank.