A credit score is a summary of how you have handled borrowed money, reduced to a three-digit number. Lenders use it to decide whether to approve a loan and what rate to offer. Understanding what the score measures makes it much easier to influence. The Personal Finance Minimalist Cheatsheet breaks down the FICO Score 8 algorithm on its third page. This guide walks through the same factors with practical context.
This article is educational and not financial advice. Your credit file may differ from the examples here.
The five factors and their approximate weights
| Factor | Approximate weight | What it measures |
|---|---|---|
| Payment history | 35% | Whether you pay on time, including late payments, defaults and collections |
| Amounts owed | 30% | How much you owe, especially credit utilization |
| Length of credit history | 15% | The age of your accounts and your average account age |
| New credit | 10% | Recent applications and newly opened accounts |
| Credit mix | 10% | The variety of account types, such as cards, installment loans and mortgages |
These weights are the approximate figures published for the general FICO model. Lenders can use other scores or their own models.
Payment history: the biggest lever
A single payment more than 30 days late can lower a score noticeably and stay on your report for years. Automating at least the minimum payment on every account is the simplest protection. If you have missed payments, the impact fades over time as long as new payments are on time.
Utilization: the fastest factor to change
Credit utilization is your revolving balance divided by your total credit limit. Lower is generally better. Many guides suggest keeping it below 30 percent, and people with the highest scores often stay far lower. Utilization is calculated from the balances reported on your statements, not necessarily the balance on your due date, so paying down a card before the statement closes can lower the reported figure. The cheatsheet calls this the statement date trick.
Credit age and mix
Older accounts help, which is one reason to keep an old card open with no annual fee rather than closing it. A healthy mix of revolving and installment credit also helps, but you should never open a loan you do not need just to improve the mix.
New credit
Each hard inquiry from a credit application can lower a score slightly for a short time. Multiple inquiries for the same loan type within a short window, such as rate shopping for a car or mortgage, are typically counted as one inquiry in FICO models.
Score tiers
FICO categorizes scores into ranges:
- Poor: 300 to 579
- Fair: 580 to 669
- Good: 670 to 739
- Very good: 740 to 799
- Exceptional: 800 to 850
Moving from one tier to the next often matters more for loan pricing than small changes within a tier.
Check your own report
Errors on credit reports are common. In the United States you can request free reports from each bureau through AnnualCreditReport.com. Review them for accounts you do not recognize, incorrect balances and late payments that were actually on time. Dispute errors directly with the bureau that reports them.
For the full factor breakdown and budgeting frameworks, see the Personal Finance Minimalist Cheatsheet. Related: the FIRE math behind savings rate and withdrawals.