How credit actually works
What is a credit score really measuring?
3 minute read
A credit score is a prediction, not a grade. It estimates how likely you are to go 90 days past due on something in the next couple of years. That is all it is trying to do.
Five things drive it, in rough order of weight: payment history, how much of your available credit you are using, how long your accounts have been open, new credit and inquiries, and the mix of account types.
Two of those you can move quickly. Utilization can change in a single statement cycle. Payment history changes slowly and only in one direction if you slip. The rest move with time.
Example
Two people both owe $8,000. One has never missed a payment and is at 40% of their limits. The other missed one payment last year and is at 85%. The gap between their scores can easily be 100 points, on the same amount of debt.
Why this matters
Once you know which parts move fast and which move slowly, you stop wasting effort on the slow ones when you need points in 60 days.
What to do with this
- Sort your levers: minimums protect you, utilization gets you points fast, age and mix take time.
- Before any application, ask what the score needs to be by what date — that decides the strategy.
Want this applied to your own numbers?
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