Understanding Your Credit Score

Most people have a rough idea of how credit scores work — until they're actually about to apply for something important and realize they're not sure about the details. Like: does checking your own score hurt it? Does closing an old card help or hurt? Will that one late payment from three years ago still matter?

Let's clear it up.

FICO vs. "A Credit Score" — What's the Difference?

A credit score is any numerical measure of your creditworthiness. FICO is the most widely used brand of credit score — created by the Fair Isaac Corporation and used by the majority of lenders. When your credit union pulls your credit to evaluate a loan, they're almost certainly looking at a FICO score.

You don't calculate your own FICO score. Experian, Equifax, and TransUnion generate it from your credit history using FICO's formula.

What Actually Goes Into Your Score

FICO weighs five things:

• Payment history (35%) — The biggest factor by far. One missed payment can drop your score significantly, even if everything else is perfect. Pay on time, every time.
• Amounts owed / utilization (30%) — How much of your available credit you're using. More on this below.
• Length of credit history (15%) — How long your accounts have been open. Older is better. This is why closing your oldest credit card is usually a bad idea.
• Credit mix (10%) — Having both revolving accounts (credit cards) and installment loans (car, mortgage) helps slightly.
• New credit / inquiries (10%) — Recent applications for new credit. More on this below too.

Credit Utilization — The One People Underestimate

Utilization is the ratio of your current credit card balances to your total credit limits. It only counts revolving accounts — credit cards, lines of credit. Not car loans, mortgages, or student loans.

Example: You have two credit cards. Card A has a $5,000 limit with a $1,500 balance. Card B has a $3,000 limit with a $600 balance. Total balance: $2,100. Total limit: $8,000. Utilization: 26%.

Most guidance says keep it below 30%. The people with the best scores keep it below 10%. If a lender tells you your utilization is high, they're saying you're using too much of your available credit — which signals risk, even if you're paying every bill on time.

Quick fix: Pay down balances before you apply for a loan. Your utilization can change significantly in a single billing cycle.

Hard Inquiries vs. Soft Inquiries

This is the one people worry about most — and usually more than they need to.

A hard inquiry happens when a lender checks your credit to evaluate an application. It appears on your report and may lower your score by a few points temporarily. It stays on your report for two years but stops affecting your score much after about a year.

A soft inquiry — like checking your own score, or a pre-approval check — does not affect your score at all. Go ahead and check your own credit as often as you want.

The shopping window: If you're applying for a mortgage or auto loan, multiple hard inquiries for the same loan type within 14–45 days count as one. Lenders know you're shopping. Rate shop freely within that window.

Things That Don't Help (That People Think Do)

• Closing old accounts — usually hurts, because it reduces your available credit and shortens your average account age
• Carrying a small balance on credit cards — a myth. Paying in full is always better.
• Opening new accounts to increase your total credit limit — can help utilization long-term but hurts short-term with new inquiries

If Something's Wrong on Your Report

You can dispute inaccurate information directly with any of the three credit bureaus (Experian, Equifax, TransUnion) or by contacting your credit union in writing. They're required to investigate. Errors are more common than people realize — worth checking your report at annualcreditreport.com once a year.