Credit Score

FICO scores are calculated using five weighted categories. Payment history (35%) is the most important factor, evaluating whether you pay your bills on time, how recently any late payments occurred, the severity of delinquencies (30 days vs. 60 vs. 90+ days), and whether any collections, charge-offs, bankruptcies, foreclosures, or judgments exist. A single 30-day late payment can reduce a 780 FICO score by 60 to 110 points depending on the scoring model version. Amounts owed (30%) measures credit utilization — the ratio of current revolving balances to total available credit limits. This category also considers the number of accounts with balances, the proportion of installment loan amounts still owed, and the total debt load. The ideal utilization ratio is below 30% across all cards, with the highest-scoring consumers typically using under 7% of their available credit.

Length of credit history (15%) considers the age of your oldest account, the average age of all accounts, and how long specific account types have been open. A longer history generally produces higher scores, which is why closing old credit cards is often counterproductive — it reduces average account age and increases utilization simultaneously. New credit (10%) evaluates recent credit inquiries (hard inquiries) and newly opened accounts. Multiple hard inquiries in a short period — typically more than six in 12 months — signal risk and lower scores, though rate shopping for a single mortgage, auto, or student loan is treated as a single inquiry if done within 14 to 45 days depending on the scoring model version. Credit mix (10%) considers the variety of accounts: revolving credit (credit cards, lines of credit), installment loans (mortgages, auto loans, student loans), and open accounts. Consumers with a healthy mix of at least one installment loan and two to three revolving cards tend to score higher than those with only one account type.

VantageScore 4.0, the latest version of the competing model, uses a similar six-factor framework but differs in weighting: payment history (41%), depth of credit (20%), credit utilization (20%), recent credit behavior (11%), available credit (5%), and account balances (3%). VantageScore can score consumers with as little as one month of credit history, whereas FICO requires at least six months. Both models ignore paid collections under newer versions, benefit from authorized user tradelines, and treat rate shopping inquiries as a single event within a 14-day window. The CFPB has proposed rules to regulate credit scoring model validation, requiring greater transparency in how scoring factors impact consumers and mandating that alternative data (rent, utilities, telecom payments) be considered in scoring models to expand credit access to credit-invisible consumers — an estimated 26 million Americans who lack traditional credit history.

Your credit score is the single most impactful factor in determining the cost of borrowing. The difference between a 620 score (subprime) and a 760 score (prime-plus) on a typical mortgage translates to roughly 1.5 to 2.5 percentage points in interest rate. On a $350,000, 30-year loan, each 0.5% rate difference adds approximately $105 to the monthly payment and nearly $38,000 in total interest. For auto loans, the spread between subprime (600) and super-prime (780) rates ranges from 6% to 18% APR depending on the lender and vehicle age. For personal loans, rates span from as low as 6% for excellent credit to 36% for poor credit — the maximum rate cap imposed by many state usury laws and Military Lending Act regulations for active-duty service members.

Beyond interest rates, credit scores affect insurance premiums in most states — a practice known as credit-based insurance scoring, permitted in 47 states under regulations requiring insurers to file their scoring models with state insurance departments. Lower credit scores can increase auto and homeowners insurance premiums by 30% to 100% according to Consumer Federation of America studies. Landlords use credit scores in tenant screening, with many requiring minimum scores of 620 to 650 for lease approval. Utility companies may require security deposits equal to two to three months of average billing for applicants with low scores. Some employers, particularly in financial services and government positions, check credit reports during background checks under the FCRA's permissible purpose requirements, though a growing number of states (California, Colorado, Washington, and others) have banned credit checks for employment decisions except for specific financial roles.