Who creates your score — and who sees it?
In the US, there are three major credit bureaus: Equifax, Experian, and TransUnion. They collect payment data from lenders, landlords, and utilities. The data they hold is called your credit report — a history of accounts, balances, and payment behaviour.
Your credit score is then calculated from your report using a mathematical model. FICO (Fair Isaac Corporation) created the most widely used model, used in 90% of US lending decisions. FICO is a score calculated from your report — they’re not the same thing.
VantageScore is a competing model, jointly created by the three bureaus, and is increasingly used. Both models produce a number from 300–850.
The FICO formula: five ingredients
FICO doesn’t publish its exact algorithm, but they do tell us the five factors and their approximate weights:
1. Payment history (35%)
The single most important factor. Have you paid every bill on time? One missed payment — even 30 days late — can crater your score by 50–150 points depending on your starting point. Late payments stay on your report for 7 years.
What counts: Credit cards, mortgages, car loans, student loans, some utility companies.
2. Amounts owed / Credit utilisation (30%)
How much of your available credit are you using? This is expressed as a percentage: if you have a £5,000 credit limit and owe £1,500, your utilisation is 30%.
Lower is better. The FICO model rewards utilisation under 30%, and ideally under 10%. Maxing out a card signals financial stress.
The trick: Utilisation is measured at the statement date, not the payment date. Pay down the balance before your statement closes.
3. Length of credit history (15%)
Older accounts are better. FICO looks at the age of your oldest account, your newest account, and the average age of all accounts.
This is why closing old cards can hurt your score — even if you don’t use them — because it removes their history from the average.
4. Credit mix (10%)
Having a mix of credit types (revolving credit like cards, instalment loans like mortgages, retail accounts) signals that you can manage different kinds of debt. This factor matters less unless everything else is equal.
5. New credit (10%)
Every time you apply for credit, the lender does a hard enquiry on your report. Multiple hard enquiries in a short window signal someone desperately seeking credit — a risk flag. Hard enquiries affect your score for 12 months and stay on your report for 2 years.
Exception: Multiple mortgage or car loan enquiries within a 45-day window are typically counted as one, to allow rate shopping.
Credit score ranges and what they mean
| Score | Category | Approximate rate access |
|---|---|---|
| 800–850 | Exceptional | Best available rates |
| 740–799 | Very Good | Near-best rates |
| 670–739 | Good | Most lenders approve |
| 580–669 | Fair | Higher rates, some denials |
| 300–579 | Poor | Subprime lenders only |
The mental model: your score is a report card on future risk
Lenders don’t care about your past as a moral judgment — they care about it as a statistical predictor. Statistically, someone who has paid every bill on time for 10 years is very likely to continue doing so. Someone who missed three payments last year is more likely to miss future payments.
Your score is literally a probability: an 800 scorer has about a 1% chance of defaulting within 2 years. A 580 scorer has roughly a 40% chance.
What actually moves your score — and how fast
Fast movers (within 1–2 months):
- Paying down credit card balances → utilisation drops
- Getting a new credit card (increases limit → lowers utilisation; new account also adds a hard enquiry)
- Being added as an authorised user on a long-standing account
Slow movers (months to years):
- Building length of credit history
- Late payments ageing off your report (7 years)
- Bankruptcy discharge (7–10 years)
Common misconceptions
“Checking your own score hurts it.” Completely false. Checking your own score — via Credit Karma, your bank’s app, or Experian — is a soft enquiry and has zero impact on your score.
“Carrying a small balance on your card helps.” A persistent myth. Carrying a balance earns you nothing with the scoring model and costs you interest — paying in full reports the same activity without the charge. The idea likely started because zero utilisation, meaning never using the credit at all, scores slightly worse than very low utilisation.
“Closing a credit card you don’t use improves your score.” Usually the opposite. Closing a card reduces your total available credit, which raises your utilisation ratio, and it eventually removes that account’s history from the calculation. An open, occasionally used account keeps both.
“Income affects your credit score.” Income is not a factor in FICO scoring at all. A high earner with a history of missed payments scores worse than a low earner who has always paid on time.