How credit scores actually work

Your FICO score isn't a black box. It's a weighted formula with five inputs that you can see, understand, and influence. Most "credit repair" services charge you to do what you can do for free in 20 minutes.

What the score is, and why it exists

A credit score is a three-digit number (300-850 for FICO; 300-850 for VantageScore) that estimates the probability you'll repay a future debt. Lenders use it as a fast filter: should they offer you credit, at what rate, with what limit?

The two main brands of score are FICO (originally Fair Isaac Corp., used in roughly 90% of US lending decisions) and VantageScore (created by the credit bureaus themselves, used heavily by free credit-monitoring apps like Credit Karma). Their formulas differ slightly but agree on what matters.

The five factors that produce a FICO score

FICO openly publishes the rough weightings. They are:

1. Payment history — 35%. Have you paid bills on time? A single 30-day late payment can drop a 780 score by 100 points and lingers for 7 years.
2. Credit utilization — 30%. What percentage of your available credit you're using. Keep total revolving balances under 30% of total limits; under 10% is even better. This is the lever that moves your score fastest.
3. Length of credit history — 15%. Average age of all your open accounts. Older = better. This is why closing your oldest credit card can hurt your score even if the card was unused.
4. Credit mix — 10%. Having both revolving (cards) and installment (loans) debt is a small positive. Don't take out a loan just for this; the effect is small.
5. New credit / hard inquiries — 10%. Recent applications. Each hard pull drops your score by 5-10 points for a few months, then mostly recovers. Multiple applications in 14 days for the same type of loan (mortgage shopping, auto loan shopping) count as one — that exception is specifically built in.

What your score actually means

The bands aren't published officially, but lenders broadly use:

• 800-850 — Exceptional. Best rates, easiest approval.
• 740-799 — Very good. Better-than-average rates, almost certain approval.
• 670-739 — Good. Approved for most things, slightly higher rates.
• 580-669 — Fair. Approved selectively, higher rates, may need a deposit.
• 300-579 — Poor. Denied for most non-secured credit.

The practical takeaway: there's no real benefit to having a 830 vs 770. Both get you the same rates on the same products. Once you cross 760, optimizing further is a hobby, not a financial strategy.

The fastest score-movers

If you want to lift your score this quarter:

1. Pay down credit cards. Utilization updates monthly when the issuer reports. Going from 60% utilization to 20% can lift a 680 score 30-50 points in one cycle.
2. Pay every bill on time. Set autopay for at least the minimum. One missed payment can erase a year of good behavior.
3. Don't close old cards. Even if you don't use a 15-year-old card, keeping it open preserves your average account age and your total available credit (= lower utilization).
4. Dispute errors on your credit report. Pull your free report at annualcreditreport.com (the only federally-mandated free one), check for accounts you don't recognize or late marks that aren't actually late. About 1 in 5 reports has at least one error.

Things that don't affect your score

Common misconceptions:

• Income. Lenders see income when you apply for credit, but FICO doesn't use it. You can have a high income and a low score.
• Checking your own credit ("soft pull"). Doesn't affect the score. Only hard pulls from new applications do.
• Marital status, race, age (sort of), gender. Legally excluded from the score formula.
• Where you live. Address is on your report; the city doesn't change your score.
• Carrying a small balance "to build credit." Total myth. Paying in full every month gives the same score benefit as carrying $20 — and saves you interest.

The score-repair industry, briefly

Companies advertising "we'll raise your score by 100 points" charge $50-200/month to do what you can do yourself: pull your report, dispute errors, and write goodwill letters. Some are scams; others are just expensive middlemen. By law (the Credit Repair Organizations Act), no one can do anything for your score that you can't do yourself for free.

If your score is low because of bad data on your report, file disputes yourself with each bureau (Experian, Equifax, TransUnion). If it's low because of actual late payments and high utilization, time and on-time payments are the only fixes. Anyone telling you otherwise is selling.

How long bad marks last

• Late payments: 7 years from the date of the missed payment
• Collections accounts: 7 years
• Chapter 7 bankruptcy: 10 years
• Chapter 13 bankruptcy: 7 years
• Hard inquiries: 2 years on the report, but only ~12 months affecting the score

The effect on the score fades faster than the items disappear. A late payment that's 4 years old hurts much less than one that's 6 months old. Time genuinely does heal a credit score, as long as you're not accumulating new negatives.

The TL;DR

Pay every bill on time (autopay). Keep credit-card balances under 30% of limit, ideally under 10%. Don't close your oldest card. Pull your report yearly for errors. Don't pay anyone to "repair" your credit. After about a year of clean behavior, the score follows.