The FICO Score: The Standard
The score most lenders actually use is the FICO Score, built by Fair Isaac Corporation. It runs from 300 to 850 and breaks down like this:
| Range | Rating | What It Means |
|---|---|---|
| 800-850 | Exceptional | Best rates available. Automatic approval for most products. |
| 740-799 | Very Good | Above-average rates. Easy approval. |
| 670-739 | Good | Average rates. Most applications approved. |
| 580-669 | Fair | Subprime rates. Some applications denied. |
| 300-579 | Poor | High rates or denial. Secured cards and rebuilding needed. |
An alternative model, VantageScore, was developed jointly by the three credit bureaus (Equifax, Experian, and TransUnion). It uses the same 300-850 range but weighs the inputs slightly differently. Most lenders pull FICO when an actual credit decision is on the line. VantageScore is what you tend to see in free credit-monitoring apps, which is fine for tracking direction but not identical to the number a lender will use (if you're European reading this — credit scoring works completely differently in most of the EU, so treat this whole article as US-specific).
The Five Factors That Determine Your Score
The FICO score is computed from five categories of information in your credit report. The weights are fixed and worth memorising, because they tell you exactly where to spend effort.
Payment History (35%)
The largest single factor. Have you paid your bills on time? A single late payment of 30 days or more can knock 50-100 points off a previously good score. Bankruptcies, collections, and charge-offs are heavier still and stay on the report for 7-10 years. The reliable way to protect this part of the score is to never miss a payment. Set up autopay for at least the minimum on every account that allows it.
Credit Utilisation (30%)
The percentage of your available credit that you are currently using. Total limits of $10,000 with $3,000 in balances equals 30% utilisation. Lower is better:
- Below 10% — Excellent. Maximum scoring benefit.
- 10-30% — Good. Minimal negative impact.
- 30-50% — Fair. The score begins to drop.
- Above 50% — Poor. Significant drag. Reads as financial stress.
Utilisation is calculated both per card and across all accounts combined. The practical target is each individual card under 30% and total utilisation under 10%. One detail people miss: utilisation is reported based on the balance on your statement closing date, not the due date. Paying the balance down before the statement closes is what actually causes a low utilisation figure to land on your credit report.
Length of Credit History (15%)
The average age of your credit accounts. Older is better. A 15-year average account age scores higher than a 2-year average. This is why closing old credit cards hurts the score — the account leaves the calculation and pulls the average down. Keep the oldest credit card open, even if you barely use it. Charge one small recurring bill to it (a streaming subscription is enough) and put it on autopay.
Credit Mix (10%)
Having different types of credit on file — credit cards, an auto loan, a mortgage, student loans — demonstrates an ability to manage more than one debt structure. This category is small. Do not take on debt you do not actually need just to improve your mix. The cost of the loan will dwarf the score benefit.
New Credit Inquiries (10%)
Each formal credit application generates a hard inquiry. Multiple hard inquiries clustered in a short window read as financial distress and temporarily cost 5-10 points each. There is one useful exception: rate-shopping for a mortgage or auto loan within a 14-45 day window is treated as a single inquiry. Applying for several credit cards in the same month is the opposite case — full damage on each.
How to Build Credit from Scratch
- Get a secured credit card. You deposit $200-$500 as collateral, and the bank issues a card with that amount as your limit. Use it for small purchases and pay in full every month. After 6-12 months of clean history, most issuers upgrade you to an unsecured card and return the deposit.
- Become an authorised user. Ask a family member with established good credit to add you as an authorised user on one of their cards. Their account history appears on your report and pulls your score up. You do not need to actually use the card, or even hold it.
- Get a credit-builder loan. Some banks and credit unions offer small loans designed specifically for this purpose. The funds sit in a savings account while you make the monthly payments. When the loan is paid off, the cash is released to you, plus you have a closed installment loan with on-time history on your file.
- Pay all your other bills on time and report them. Rent, utilities, and phone bills can be reported to the bureaus through services like Experian Boost. On-time payments on these accounts add positive history that previously did not appear on the report at all.
How to Improve an Existing Score
- Pay down balances. Cutting utilisation from 50% to 10% can move the score 50-100 points within a single billing cycle. The fastest lever you have.
- Dispute errors. Pull the report at AnnualCreditReport.com — free, once a year from each of the three bureaus. Dispute any inaccurate late payments, wrong balances, or accounts you do not recognise.
- Do not close old accounts. Keeping them open preserves both history length and total available credit, which is what keeps utilisation low.
- Limit new applications. Each hard inquiry costs points. Space credit applications at least 6 months apart unless you are doing a single rate-shopping window.
- Set up autopay everywhere. Automate at least the minimum on every account. One missed payment can erase months of slow progress.
Credit Scores and Investing
The credit score does not directly affect your ability to trade stocks. Brokerage accounts for cash trading do not require a credit check. The connection is indirect, but it is real. Good credit is part of the financial foundation that quietly supports an investing plan:
- Lower interest rates on consumer debt leave more cash flow available for monthly investing.
- Access to low-rate margin accounts for traders who choose to use leverage.
- The ability to secure a mortgage at a favourable rate, which protects long-term cash flow.
- Financial stability that prevents the worst case in an emergency: having to sell investments at a bad moment to cover a short-term cash gap.
As with the emergency fund, building good credit is unglamorous work. The score moves slowly. The wins are not exciting. But it is the kind of foundation that makes the rest of a financial plan — investing included — quieter and easier to stick to.
See also: What Is an Emergency Fund? · Compound Interest · How to Open a Brokerage Account · What Is Margin Trading?
