The Formula Behind Your Score
There's a lot of garbage advice floating around about credit scores. Your uncle at Thanksgiving swears you need to carry a balance. Your coworker insists that checking your score will tank it. And somewhere on the internet, someone is paying $79 a month to a "credit repair" company that's doing absolutely nothing.
Here's the problem: Believing the wrong things about your credit score can cost you tens of thousands of dollars over your lifetime. Higher interest rates on mortgages, car loans, and credit cards. Getting denied for apartments. Real money walking out of your pocket because you followed advice from people who didn't know what they were talking about.
Before we bust the myths, you need to understand what actually goes into your FICO score. It's not magic. It's not random. It's a formula.
The Five Factors
Payment History: 35% Do you pay your bills on time? This is the single biggest factor. A history of on-time payments builds your score; late payments damage it.
Amounts Owed (Credit Utilization): 30% How much debt do you have compared to your available credit? If you have a $10,000 credit limit and you're using $3,000, that's 30% utilization.
Length of Credit History: 15% How long have you had credit accounts open? Older accounts help your score.
New Credit: 10% Have you opened a bunch of new accounts recently? Too many new accounts in a short time can signal risk.
Credit Mix: 10% Do you have different types of credit—credit cards, auto loans, mortgage? A healthy mix shows you can manage various types of credit.
Why This Matters
That's it. Five factors. Every myth we're about to debunk comes from misunderstanding how these factors actually work.
The average FICO score in America is 715—that's in the "good" range. But "good" isn't great. And if you're below that because you've been following myths instead of facts, it's time to set the record straight.
Key Takeaway
Your credit score is calculated from five specific factors: payment history (35%), amounts owed (30%), length of history (15%), new credit (10%), and credit mix (10%). Understanding these factors is the foundation for separating credit myths from reality.