Credit Scores
The Price of Money
Your credit score is a three-digit number that determines how much you pay for money. Higher score means lower interest rates, which means cheaper mortgages, car loans, and insurance premiums. A 740 score versus a 640 score on a $300,000 mortgage can mean $100,000+ in extra interest over 30 years. That is not a rounding error. It is a house. This number matters more than almost any other financial metric in your life.
FICO Score Components
The FICO score is built from five weighted categories. Two of them, payment history and credit utilization, account for 65% of the total. That concentration means you can meaningfully move your score by focusing on just two behaviors: paying on time and keeping balances low.
Credit Utilization
Credit utilization is the percentage of your available credit you are currently using. $3,000 balance on a $10,000 limit equals 30% utilization. Keep it below 30% across all cards, ideally below 10% for the best scores. This is the fastest lever to move your score. Pay down a card balance and your score can jump 20-40 points in a single billing cycle. Utilization has no memory. Last month's high balance does not count against you once you pay it down.
Credit Score Ranges
FICO scores range from 300 to 850. Where you fall determines not just approval odds but the price you pay for every dollar you borrow.
| Range | Rating | Typical Impact |
|---|---|---|
| 800-850 | Exceptional | Best rates available, instant approvals |
| 740-799 | Very Good | Near-best rates, easy approvals |
| 670-739 | Good | Average rates, most approvals |
| 580-669 | Fair | Higher rates, some denials, may need deposits |
| 300-579 | Poor | High rates or denials, secured cards only |
Hard vs. Soft Inquiries
Soft inquiry: checking your own score, pre-approval checks, employer background checks. No impact on your score. Hard inquiry: applying for credit (mortgage, car loan, credit card). Drops your score 5-10 points temporarily and stays on your report for 2 years. Multiple hard inquiries for the same loan type within 14-45 days count as one. This is rate shopping protection. The system expects you to compare lenders when buying a house or car. Do not apply for credit cards in the months before a mortgage application. Each card application is a separate hard inquiry with no bundling protection.
Building Credit Fast
If your score needs work, these five tactics produce the fastest results. Most people see meaningful improvement within 60-90 days.
- Become an authorized user on a family member's old card with perfect history. Their payment history appears on your report.
- Get a secured credit card, use it for one small recurring charge, and pay the full balance monthly.
- Never close your oldest credit card. Length of history matters, and closing it drops your average account age.
- Set up autopay for at least the minimum on every account. One missed payment can drop your score 60-100 points.
- Request credit limit increases every 6-12 months. This lowers your utilization ratio without changing your spending.
Your credit score determines the price of money. Payment history and utilization are 65% of the score. Pay on time, keep balances low, and your score takes care of itself. The difference between a good score and a great score is tens of thousands of dollars over a lifetime of borrowing.
Your credit score is built on five factors, but payment history (35%) and utilization (30%) dominate. Pay every bill on time, keep credit card balances below 10% of your limit, and never close your oldest account.