What is a credit score, and why does it matter?
A credit score is a three-digit number ranging from 300 to 850 that shows lenders how likely you are to repay borrowed money. It’s based on information in your credit report, such as payment history, debt levels and account age.
Banks, credit card companies, landlords, insurers and even some employers may use your credit score to help decide whether to approve an application or set rates and terms.
Your credit score matters because it can affect your ability to do things like qualify for loans, rent an apartment or get lower interest rates. The higher your score, the more trustworthy you may appear to lenders.
» MORE: What is a good credit score?
Key factors used to calculate your credit score
There are two credit scoring models used by lenders in the U.S.: VantageScore and FICO. Your credit score can vary slightly between the two, as they each weigh factors differently. Since FICO is the more popular scoring model, we will use it as our main example for this article.
Here are the five main factors FICO uses to determine your score.
Payment history (35%)
Your payment history accounts for 35% of your overall score, so it is a big deal. Your payment history counts your past payments on mortgages, credit card bills and loans.
Lenders emphasize this factor because it demonstrates your reliability. Late payments or missed payments can drop your score significantly if the lender reports them to the credit bureaus, and late payments can stay on your report for up to seven years.
How to optimize your payment history
Make on-time payments, even if it means just paying the minimum amount due. This builds your reliability and shows creditors that you’re responsible with money.
Amounts owed (30%)
The amount of debt you have makes up 30% of your credit score. One of the factors of this segment is your credit utilization ratio on revolving accounts. It is calculated by dividing how much you owe across all credit cards by your total credit limit. So, someone with high debt could still have a low credit utilization score, depending on their overall credit limit.
Ideally, your credit utilization rate should be under 30%, and the lower, the better.
Here are several examples:
- Jill has two credit cards with a total credit limit of $5,000. Jill owes $2,500 on these cards. Jill’s credit utilization rate is 50%, which is too high.
- Jasper has five credit cards with a total credit limit of $50,000. Jasper owes $10,000 on these cards. Jasper’s credit utilization rate is 20% and is in a healthy range, despite the fact that he has four times more credit card debt than Jill.
Installment loans, like student loans, car loans and mortgages, do not factor in your credit utilization score. They are calculated in your debt-to-income (DTI) ratio, which won’t affect your credit score but can affect your approval for financing.
How to optimize your credit utilization ratio
“If you aren’t able to pay off your credit cards in full every month, it is best to keep your credit usage below 30% of your credit limit,” said Scott Nelson, the CEO of MoneyNerd. “This will show lenders that you are responsible with loaned money.”
Length of credit history (15%)
Credit history makes up 15% of your credit score. It’s based in part on the average age of all your credit accounts. Every time you open up a new account or close an account, this average will change.
How to optimize your credit history
Don’t close old accounts. If you have an older credit card or store card that you no longer use, consider using it once every six months and paying it off immediately to show it is still active.
Credit mix (10%)
The types of credit you have, or your “credit mix,” make up 10% of your credit score. Your credit mix shows you can handle multiple types of debt and remain financially responsible. The two kinds of credit accounts that impact credit scores the most are:
- Revolving accounts: These types of accounts don’t have a predetermined amount due and don’t require you to pay in full each month (e.g., credit cards, home equity line of credit).
- Installment loans: These types of accounts tend to have fixed payments for a fixed amount of time (e.g., student loans, personal loans, car loans).
How to optimize your credit mix
Having both kinds of accounts on your credit report makes for the healthiest credit score. But since your types of credit constitute only 10% of your final score, not having one won’t critically impact it.
New credit (10%)
Rounding out the final 10%, the fifth factor that determines your credit score is your new credit, which is a compilation of hard credit checks that you’ve incurred over the past 12 months. Keep in mind that requesting a credit increase from a current credit card might require a hard credit check, but the impact in the long run could be positive if your credit utilization ratio improves.
How to optimize your recent credit
Avoid filling out too many applications that require a hard credit check within a short span of time. However, if you’re shopping around for the best rate for a new auto or home loan, don’t worry — credit bureaus lump together frequent credit checks that happen within 14 to 45 days for these purposes.
What doesn’t affect your credit score?
The following factors do not affect your credit score, but they can be used by lenders to determine eligibility for financing:
- Income
- Employment status
- Getting married
- Getting divorced
- Getting help from a credit counselor
- Credit application denial
- Checking your credit score
If you have errors on your credit report or are a victim of identity theft, this can impact your credit score; however, you can dispute mistakes. A credit score check won’t reveal errors or suspicious activity, so you should request free credit reports annually through the credit bureaus.
» MORE: How to check your credit score
FAQ
What is the difference between VantageScore and FICO?
The biggest difference between the two scoring models is how different factors are weighed to determine your credit score. For example, VantageScore 4.0 counts payment history as 41% of the score, whereas FICO counts it as 35%. Both also have different credit score ranges: VantageScore says scores above 780 are “superprime,” while FICO classifies scores 800 and above as excellent.
How often should I check my credit score?
Using a credit score monitoring company will not hurt your credit score and can be helpful in maintaining a healthy number. If you are actively trying to improve your credit, checking it once a month can help you see which actions are having a positive effect. However, it could be two to three months before you see a credit score change.
Is your credit score affected if you fail to pay taxes?
If you are late on your taxes or if you owe on your taxes, the IRS is not going to report this to the credit bureaus. However, failing to pay taxes could end up having indirect effects on your credit score — for example, if you end up using credit to cover back taxes and increasing your credit utilization ratio.
What positive actions can improve your credit score?
To improve your credit score, make on-time payments and maintain low credit balances — around two-thirds of your credit score is made up of these two factors. If you need help improving your credit or managing debt, you can get assistance from a professional credit counselor.
What negative actions can damage your credit score?
Late or missed payments, maxing out credit cards, accounts sent to collections, loan defaults and bankruptcies can all lower your credit score. Applying for several new credit accounts at once or closing older accounts may also cause a drop.
Article sources
ConsumerAffairs writers primarily rely on government data, industry experts and original research from other reputable publications to inform their work. Specific sources for this article include:
- Equifax, “How Long Does Information Stay on My Equifax Credit Report?” Accessed Feb. 6, 2026.
- FICO, “What's in my FICO Scores?” Accessed Feb. 6, 2026.
- Equifax, “Understanding Hard Inquiries on Your Credit Report.” Accessed Feb. 6, 2026.
- Equifax, “7 Things That Won't Hurt Your Credit Scores.” Accessed Feb. 6, 2026.
- Intuit, “Video: Does Owing the IRS Affect Your Credit Score?” Accessed Feb. 6, 2026.
