Credit basics · 8 minute read
How credit scores actually work
There is no single score, the five factors are not equally weighted, and the version your bank shows you is probably not the one a mortgage lender will use.
Two families, three bureaus, many versions
FICO, made by the Fair Isaac Corporation, is the older family and the one most lenders buy. VantageScore was built jointly by the three bureaus. Both currently run on a 300 to 850 scale, which is why they look interchangeable and are not.
On top of that, each family has versions. FICO 8 is the most widely used; FICO 9 and 10 handle medical and paid collections more gently. Mortgage lending, under long-standing rules, has generally used much older versions — FICO 2, 4 and 5 — which is why a mortgage pull can come back lower than the number on your phone.
And each score is calculated on one bureau’s data. If TransUnion holds a collection that Experian does not, the two scores will differ for reasons that have nothing to do with the model.
Chasing a specific number is chasing something that does not exist on its own. What is stable across every model is the underlying behaviour: pay on time, use a small fraction of what is available, and let accounts age. Fix those and every version of every score moves in the same direction.
The five factors, and their real weights
FICO publishes approximate weights for a typical file. They shift for people with thin files or recent derogatory marks, but as a map of where to spend your effort they are reliable.
- Payment history, about 35 per cent. Whether you paid on time. A single payment 30 days late is reported and stays seven years.
- Amounts owed, about 30 per cent. Overwhelmingly utilisation — the fraction of your revolving limits you are using — rather than the raw dollar figure.
- Length of credit history, about 15 per cent. The age of your oldest account, your newest, and the average. This is the argument for not closing an old card.
- Credit mix, about 10 per cent. Whether you have both revolving accounts and instalment loans. Worth knowing, not worth taking on debt for.
- New credit, about 10 per cent. Recent hard inquiries and recently opened accounts.
What is not in there at all
Your income. Your savings. Your employer or job title. Your race, religion, national origin, sex or marital status. Your medical conditions. Your rent, unless the landlord reports it, which most do not. Your utilities, unless they go to collections.
A credit report is duller and narrower than most people fear. It is a list of borrowing, in date order, plus your name, addresses and date of birth. That is nearly all of it.
Why the number moves when nothing happened
Because a score is recalculated the moment it is requested, from whatever the file says that day. A card issuer reporting a statement balance of $1,400 instead of last month’s $200 will move the score even though you paid it off a week later — the report is a snapshot on the statement date, not a diary.
This is also why a score can drop after you pay off and close a loan. The account stops ageing, your mix narrows, and your available credit may fall. It is not a punishment for paying your debts; it is a model noticing that the file changed.
Nobody here is going to tell you off.
The first conversation is free, it takes about half an hour, and it ends with you knowing what is actually on your file and what can honestly be done about it. If the answer is "nothing we can charge for", we will tell you that, and you will still get the plan.
Not ready to talk to anyone? Take the guide and do it yourself. It is the same method, it costs nothing, and you never have to tell us you used it.