How Does a Credit Score Work? What Raises or Lowers Yours

Your credit score is not a grade for how good you are with money. It is a number made from the information in your credit reports. A lender may use it to guess how likely you are to repay borrowed money.

Here is the good news: you do not need to carry a balance or pay interest to build credit. Pay on time. Keep card balances low when you can. Apply for new credit only when you need it. Check your reports for mistakes.

The five things that shape a FICO score

FICO is one company that makes credit scores. It says five parts of your credit report shape a general FICO score.[1]

Payment history and debt use carry the largest general weights. Your exact result still depends on the full credit file and score version. Source: FICO.

Part of the score | General weight | In plain English
Payment history | 35% | Did you pay your accounts on time?
Amounts owed | 30% | How much debt do you have, and how much of each card limit are you using?
Age of your credit | 15% | How long have your accounts been open?
New credit | 10% | Have you opened or applied for several accounts recently?
Types of credit | 10% | Do you have experience with cards, loans, or both?

These numbers are not a point recipe. For example, paying off a card will not add the same number of points for everyone. Your result depends on what else is in your reports and which score version the lender uses.

Other companies make scores too. A score in your banking app may not be the score a car dealer or mortgage lender sees.[9]

Credit score myths that can cost you money

What people say | What is true
"I need to carry a balance." | No. Paying interest does not help a FICO score.[7]
"Checking my own credit hurts it." | No. Your own check is a soft inquiry. It does not lower a FICO score.[5]
"My income is part of my FICO score." | No. Income is not in a traditional credit report. A lender may ask about it separately.[1]
"Using less than 30% is all that matters." | No. There is no magic 30% line. Lower use is usually better, but the effect differs by person.[4]
"One trick will raise my score by 100 points." | No one can honestly promise that. Credit files and score formulas differ.
"I should get a loan just for credit mix." | Usually not. FICO says you do not need every type of account.[1]

What credit utilization means

Credit utilization is the part of a card limit that shows as used.

Here is a simple example:

Your card limit is $2,000.

The balance reported to the credit bureaus is $400.

You are using 20% of that limit.

FICO looks at use across all of your cards. It can also look at each card by itself.[3]

The word "reported" matters. The balance in your card app today may not be the balance on your credit report. Many card companies send a balance around the statement closing date. Their timing can differ.

Paying before the balance is reported may lower the use shown on your report. Paying the statement balance by the due date may also help you avoid interest when your card has a grace period.[3][7]

Do not let score timing make the bill confusing. Paying on time matters more than trying to game every reporting date.

Soft checks and hard checks

A soft inquiry is a credit check that does not affect a FICO score. Checking your own credit is one example.

A hard inquiry usually happens when you apply for a loan or card. It may lower a score for a short time. FICO says one hard inquiry lowers most people's scores by fewer than five points, but the effect can be different for a new or thin credit file.[5]

Shopping for one mortgage, auto loan, or student loan is treated differently. Some FICO versions group those loan checks within 14 days. Newer versions may use 45 days. Keeping the loan applications within 14 days is the cautious choice when you do not know the version.[6]

This special treatment does not turn several credit card applications into one check.

Before you submit a form, ask one simple question: "Will this be a soft check or a hard check?"

What happens when you close a credit card

Closing a paid-off card removes its credit limit from the total available to you. If you still have balances on other cards, your credit utilization may rise. That can lower a score.[8][10]

Closing a card does not erase its age right away. FICO can keep counting a closed account's age while it remains on your report.[8]

There are still good reasons to close a card:

The annual fee is not worth it.

The card makes overspending harder to control.

A joint account needs to close after a separation.

You have a security concern.

If you keep an old card, check it for fees and charges you do not know. Your safety matters more than squeezing out a few possible score points.

Check all three credit reports for free

A credit report is the record. A credit score is a number made from that record.

AnnualCreditReport.com is the federally approved site for free reports from Equifax, Experian, and TransUnion. The three bureaus currently offer one free online report each week.[11][12]

Check all three. They may not show the same information.

Look for:

accounts you did not open;

a late payment that was paid on time;

a wrong balance or credit limit;

an account marked open when it is closed;

a hard inquiry you do not know;

a wrong name, address, or other personal detail.

How to fix a credit report error

An error should usually be reported to two places:

The credit bureau showing the error.

The bank, lender, or company that sent the wrong information.

Name the exact item. Say why it is wrong. Send copies of proof, not your only originals. Save every confirmation and reply.[13]

AnnualCreditReport.com links to each bureau's dispute page.[14] If the error came from identity theft, use IdentityTheft.gov for an official report and recovery plan.[16] If you were just scammed or had data stolen, what to do if you get scammed walks through freezing all three reports.

A dispute is for wrong or incomplete information. Accurate negative information cannot usually be removed just because it hurts. The FTC warns that a company promising to erase all accurate negative information may be a scam.[15]

Start here

Get all three reports before paying for credit repair or monitoring. If the reports are right, choose one habit to improve this month. Set a due-date alert. Pay down a card balance. Stop applying for accounts you do not need.

If a card balance keeps growing, find the leak first with the paycheck-to-paycheck check.

If a report is wrong, use the free official dispute process and save your records.

Sources

FICO, "What's in my FICO Scores?" Accessed 2026-07-27.

FICO, "What is Payment History?" Accessed 2026-07-27.

FICO, "How Owing Money Can Impact Your Credit Score" Accessed 2026-07-27.

FICO, "What Should My Credit Utilization Ratio Be?" Accessed 2026-07-27.

FICO, "Does Checking Your Credit Score Lower It?" Accessed 2026-07-27.

FICO, "How to Rate Shop and Minimize the Impact to Your FICO Scores" Accessed 2026-07-27.

FICO, "You Don't Need to Carry Credit Card Balances to Improve Your FICO Scores" Accessed 2026-07-27.

FICO, "How to Decide Whether It's Time to Close a Credit Card" Accessed 2026-07-27.

Consumer Financial Protection Bureau, "Understand your credit score" Accessed 2026-07-27.

Consumer Financial Protection Bureau, "Does it hurt my credit to close a credit card?" Accessed 2026-07-27.

AnnualCreditReport.com, official free credit-report request site Accessed 2026-07-27.

Federal Trade Commission, "Free Credit Reports" Accessed 2026-07-27.

Consumer Financial Protection Bureau, "How do I dispute an error on my credit report?" Accessed 2026-07-27.

AnnualCreditReport.com, "Filing a dispute" Accessed 2026-07-27.

Federal Trade Commission, "Only scammers say they'll remove all negative information from your credit report" Accessed 2026-07-27.

IdentityTheft.gov, official recovery steps Accessed 2026-07-27.