Credit Score

Score ranges and what they mean

The dominant credit-scoring model in the US is FICO, with a range of 300-850:

• 300-579 — Poor. Very limited credit access, high rates if any.
• 580-669 — Fair. Subprime credit terms.
• 670-739 — Good. Average for US adults; reasonable rates and approvals.
• 740-799 — Very Good. Most preferred-tier products available.
• 800-850 — Exceptional. Best rates and limits.

VantageScore, a competing model, uses the same range but scores slightly differently. Most consumers see VantageScore in free credit-monitoring apps (Credit Karma, etc.) and FICO in lender decisions.

How FICO is calculated

FICO weights five factors:

• Payment history (35%) — most important single factor. On-time vs. late payments, collections, bankruptcies.
• Amounts owed (30%) — primarily credit utilization, the percentage of available revolving credit being used.
• Length of credit history (15%) — average age of accounts, age of oldest account.
• Credit mix (10%) — variety of credit types (cards, installment loans, mortgages).
• New credit (10%) — recent inquiries and new accounts.

The exact formula is proprietary, but these weights are widely documented and approximately accurate.

What hurts your score most

In approximate order of impact:

1. Bankruptcy or foreclosure — can drop scores 100-200+ points; takes years to recover.
2. Defaulted account in collections — major hit to scores.
3. 30+ days late payment — typically a 60-100 point drop on a previously high score.
4. High credit utilization — using >30% of your limits has noticeable effect; >50% is significant.
5. Multiple recent applications — concentrated hard inquiries indicate stress.
6. Closing old accounts — reduces total available credit and shortens average account age.

What helps

• On-time payments, every month, on every account. The single biggest lever.
• Keep utilization low. Below 30% is good; below 10% is better; 1-3% is often optimal.
• Don't close old accounts without reason. Aged accounts help.
• Don't apply for new credit unnecessarily. Each hard inquiry has small impact, but they accumulate.
• Review reports for errors. Disputing inaccurate items can produce immediate improvements.
• Become an authorized user on a long-running, well-managed account (often a parent's or spouse's).

What credit scores affect

Beyond loan rates, credit scores increasingly determine:

• Auto and homeowner's insurance premiums — many states allow credit-based pricing.
• Apartment rental approval — landlords routinely run credit checks.
• Some employer background checks — particularly for financial-industry roles or jobs with fiduciary responsibilities.
• Utility deposits — companies may require deposits for low-credit customers.
• Cellphone contracts and equipment financing.

Two people with similar incomes but different credit scores can pay materially different costs across all of these. The credit-score impact compounds over a lifetime — a rough estimate is that excellent credit vs. fair credit can be worth tens of thousands of dollars in cumulative savings.

Common myths

• Checking your own score doesn't hurt it. That's a soft inquiry. Hard inquiries are when you apply for credit.
• Carrying a balance doesn't help. Paying in full each month is fine; carrying balances just costs interest without benefiting your score.
• Closing a card doesn't immediately raise your score. It often lowers it (utilization goes up, average age can go down).
• One late payment doesn't mean your credit is "ruined." It hurts but recovers over time, especially if it's a one-off rather than a pattern.
• Income isn't on the credit report. Lenders may look at both, but they're separate inputs.

Credit scores in other countries

The US system is unusually score-driven. Other major economies have different structures:

• UK — Equifax, Experian, TransUnion all operate, but scoring is less standardized and less central to loan decisions.
• Germany — Schufa is the dominant credit registry; the score is less granular than FICO.
• Most of EU — wide variation by country; many have less developed consumer-credit-scoring systems.
• Australia — Comprehensive Credit Reporting introduced more US-style scoring relatively recently.

Crypto-native applications increasingly experiment with on-chain credit scores based on wallet history, DeFi borrowing patterns, and asset holdings. None has reached meaningful scale yet; most under-collateralized lending in DeFi is still vulnerable to Sybil attacks because there's no native identity layer to anchor reputation.