📋 Table of Contents
What Is a Credit Score?
A credit score is a three-digit number (typically 300–850) that summarizes your creditworthiness based on your borrowing and repayment history. The most widely used scoring model is FICO, developed by Fair Isaac Corporation. VantageScore is a newer competing model with a similar range.
Credit scores are calculated from data in your credit report — maintained by the three major bureaus: Equifax, Experian, and TransUnion. Your score may differ slightly between bureaus depending on what data each has received.
Credit Score Ranges
| FICO Range | Category | Lender Perception | Typical Mortgage Rate |
|---|---|---|---|
| 800–850 | Exceptional | Best terms, elite access | Best available |
| 740–799 | Very Good | Near-best rates on most products | +0.1–0.3% |
| 670–739 | Good | Most competitive products | +0.25–0.5% |
| 580–669 | Fair | Higher rates, limited options | +0.5–2% |
| 300–579 | Poor | Denial or very high rates | +2–4% or denied |
5 Factors That Make Up Your FICO Score
| Factor | Weight | What It Measures |
|---|---|---|
| Payment History | 35% | On-time vs late/missed payments |
| Amounts Owed (Utilization) | 30% | Credit used vs credit available |
| Length of Credit History | 15% | Age of oldest/newest accounts, average age |
| Credit Mix | 10% | Variety of account types (cards, loans, mortgage) |
| New Credit | 10% | Recent applications and hard inquiries |
Payment History (35%)
The most important factor. A single 30-day late payment can drop a good score by 60–90 points. Late payments stay on your report for 7 years, but their impact decreases over time — especially once you establish a new pattern of on-time payments.
Credit Utilization (30%)
The percentage of your available revolving credit that you're using. Both individual card utilization and total utilization across all cards matter. This is also the fastest factor to improve — changes affect your score within one billing cycle.
Length of Credit History (15%)
Longer history = better score. This includes: age of oldest account, age of newest account, and average age of all accounts. Closing old cards hurts this metric — be cautious about closing long-standing accounts.
Credit Utilization Deep Dive
Since utilization has a 30% weight and responds fastest to changes, it deserves extra attention:
| Utilization Rate | Score Impact | Recommendation |
|---|---|---|
| 0–9% | Excellent | ✅ Ideal range |
| 10–29% | Good | ✅ Acceptable |
| 30–49% | Fair | ⚠️ Start paying down |
| 50–79% | Poor | ❌ Significant negative impact |
| 80–100% | Very Poor | ❌ Major damage |
How Your Score Affects Your Finances
Your credit score determines the interest rates you're offered across multiple financial products:
| Product | Score 760+ | Score 680 | Score 620 | Difference |
|---|---|---|---|---|
| $350k Mortgage (30yr) | 6.5% | 6.9% | 7.5% | ~$300/mo |
| $30k Auto Loan (60mo) | 5.9% | 8.5% | 12% | ~$100/mo |
| Credit Card APR | 15–18% | 20–24% | 25–30% | Thousands/yr |
| Personal Loan ($10k) | 7–9% | 12–15% | 18–25% | ~$50/mo |
How to Improve Your Credit Score
Quick Wins (0–60 days)
- Pay down credit card balances — reduce utilization below 30% immediately
- Dispute errors on your reports — 20% of credit reports contain errors; dispute at all three bureaus
- Request credit limit increases — reduces utilization ratio without changing balances
- Become an authorized user on someone else's old, well-managed account
Medium-Term Improvements (3–12 months)
- Never miss a payment — set up auto-pay for at least the minimum
- Keep old accounts open — even if you don't use them (small annual fee may be worth it)
- Avoid opening multiple new accounts at once — space applications 6+ months apart
- Mix of credit types — having a credit card + installment loan (auto/personal) improves mix score
Long-Term Building (1–5 years)
- Consistent on-time payments accumulate positive history
- Negative marks (late payments, collections) age off over 7 years
- Age of credit history grows — time is the inescapable factor
Common Credit Score Myths
- Myth: Checking your score hurts it. Only hard inquiries (lender checks) affect your score. Checking your own score is a soft inquiry with no impact.
- Myth: Carrying a small balance is good. Paying in full is always better. Interest charges add up; the bureau just needs to see active use.
- Myth: Closing credit cards improves your score. Closing cards can actually hurt your score by reducing available credit and shortening credit history.
- Myth: Income affects your credit score. Income is not part of any credit scoring model. A high earner with poor payment habits will have a low score.
- Myth: You have one credit score. You have many scores — different bureaus, different scoring models (FICO 8, FICO 9, VantageScore 3.0, etc.). The variation is usually small.