What is a credit score?
Key takeaways
04 · ideas- Credit scores range from 300–850; 740+ gets best mortgage rates
- Payment history (35%) is the most important factor
- A 90-point score difference on a $300k mortgage costs $40,000+
- Checking your own score never hurts it (soft inquiry)
Basic level
The essentials · 1 min
A credit score is a three-digit number (300–850) that tells lenders how likely you are to repay a loan. Think of it as a financial GPA.
The score ranges:- 800–850: Exceptional — best rates available
- 740–799: Very good — nearly best rates
- 670–739: Good — average rates
- 580–669: Fair — higher rates, harder to get loans
- Below 580: Poor — very high rates or denied
- Score 760+: ~6.5% rate → $1,896/month → $382,560 total
- Score 680: ~7.2% rate → $2,040/month → $434,400 total
- Difference: $51,840 over 30 years — from having a lower score
- Pay every bill on time, every month
- Keep credit card balances below 30% of your limit
- Don't open many new accounts at once
- Keep old accounts open (length matters)
Intermediate level
How it applies · 2 min
The five FICO factors in detail
| Factor | Weight | What it means | How to improve |
|---|---|---|---|
| Payment history | 35% | Have you paid on time? | Never miss a payment — even one 30-day late hurts for 7 years |
| Amounts owed | 30% | How much of your available credit do you use? | Keep utilization below 30% (ideally below 10%) |
| Length of history | 15% | How long have your accounts been open? | Keep old cards open, even unused |
| New credit | 10% | How recently did you apply for credit? | Limit hard inquiries to once every 6 months |
| Credit mix | 10% | Do you have different types of credit? | Having a mortgage + credit card + installment loan helps |
How quickly your score can change
| Action | Score impact | Time to recover |
|---|---|---|
| 30-day late payment | -60 to -110 pts | 7 years |
| Maxing out a credit card | -25 to -50 pts | 1–3 months after paying down |
| Opening a new credit card | -5 to -10 pts | 3–6 months |
| Applying for 5 cards at once | -25 to -45 pts | 1–2 years |
| Paying off a collection | +10 to +150 pts | Varies |
| Credit card balance 0% vs 90% | +20 to +75 pts | Next billing cycle |
Rate differences by credit score tier
For a $300,000 30-year mortgage:
| Score range | Typical rate | Monthly payment | Total interest | Extra cost vs. 760+ |
|---|---|---|---|---|
| 760–850 | 6.5% | $1,896 | $382,560 | — |
| 700–759 | 6.8% | $1,955 | $403,800 | +$21,240 |
| 680–699 | 7.2% | $2,040 | $434,400 | +$51,840 |
| 660–679 | 7.7% | $2,152 | $474,720 | +$92,160 |
| 640–659 | 8.1% | $2,229 | $502,440 | +$119,880 |
| 620–639 | 8.5% | $2,307 | $530,520 | +$147,960 |
Advanced level
The math, step by step · 1 min
How FICO calculates your score
FICO uses a weighted regression model trained on millions of credit files. The exact formula is proprietary, but the mechanics:
Payment history scoring: Each account is coded:- Current (pays on time): +0 to +positive
- 30/60/90/120+ days late: progressively worse
- Collections, bankruptcy: severely negative
Both aggregate utilization and per-card utilization matter. A $9,500 balance on a $10,000 card hurts even if total utilization is 20%.
Credit score vs. credit report
- Credit report: The raw data (all accounts, all payment history, inquiries, public records) from Equifax, Experian, TransUnion
- Credit score: A mathematical summary of the credit report (FICO, VantageScore, etc.)
You have 3 credit reports (one per bureau) and dozens of credit scores (different models, versions, and lenders). Mortgage lenders typically use the middle of your three FICO 2/4/5 scores.
Authorized user strategy: Being added to someone else's old, well-maintained credit card can add their history to your file — potentially adding 20–50+ points quickly if the account has high limits and perfect payment history.