Guide · Reviewed 6 September 2026
Credit score 750+ gets best loan rates (saving $100K on a mortgage). Score 600–700 costs 2–3% more annually. Score under 600: limited borrowing access.
Credit scores measure borrowing risk. Higher score = lower interest rates. A 740 score on a $300K mortgage saves ~$60K in interest vs a 620 score over 30 years. Payment history and debt level drive the score.
FICO score breakdown (most common)
- Payment history (35%): On-time payments matter most. One late payment drops score 100+ points.
- Credit utilization (30%): Ratio of credit used vs available. Under 30% is good; under 10% is excellent.
- Length of credit history (15%): Older accounts = higher score. Closing old cards hurts.
- Credit mix (10%): Mix of cards, loans, mortgage = slightly higher score.
- New inquiries (10%): Hard inquiries (loan/card application) lower score slightly; effect fades in 3–6 months.
Score ranges and impact
| FICO range | Loan approval | Mortgage rate | Credit card rates |
|---|---|---|---|
| 800+ | Excellent | 3.2% (best available) | 12–15% |
| 740–799 | Very good | 3.4% | 14–17% |
| 670–739 | Good | 3.8% | 18–21% |
| 620–669 | Fair | 4.3% (+1.1% premium) | 22–25% |
| Below 620 | Poor | 5.0%+ or denied | 24%+ or denied |
Example: $300K mortgage at 3.2% (score 800+) = $1,264/month. Same at 5.0% (poor credit) = $1,610/month. Difference: $346/month = $124K over 30 years.
How to build credit
- Get a credit card: Small limit to start. Use for small purchases, pay in full monthly. No interest charges + builds history.
- Keep utilization low: Max 30% of limit. If limit $1K, keep balance under $300.
- Never miss a payment: One 30-day late = score drop of 100+ points. 60-day+ late severely damages credit.
- Don't close old cards: Length of history matters. Keep old cards open (even unused) to preserve age.
- Diversify credit: Card + auto loan + mortgage = higher score than cards alone.
Common score killers
- Late payment (30+ days late): −100+ points
- Collections/charge-off: −150+ points (permanent for 7 years)
- Bankruptcy: −200+ points (10 years on report)
- High utilization (>50%): −50+ points
- Multiple recent inquiries: −10–30 points per inquiry (fades in 3–6 months)
Debt-to-income ratio
Lenders also check monthly debt payments ÷ monthly income:
- Under 36%: Good (most loans approved)
- 36–43%: Fair (stricter approval, higher rates)
- Above 43%: Hard to get approved for mortgage
Example: $5K/month income, $1K debt payments = 20% ratio (good).
Recommendation: Build score to 740+ before major borrowing (mortgage, auto loan). Maintain on-time payments and low utilization. Score drop is fast (months), recovery is slow (years).