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The Credit Score Guide For Every 20-Something

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When newspaper columnist Earl Wilson (1907-1987) wrote, “Modern man drives a mortgaged car over a bond-financed highway on credit card gas,” he was reminding us all that we live in a world that revolves around credit and, in particular, our credit score.

In particular, if you're 20-something, you're probably still wondering how you received the credit score you got, not fully comprehending how just one late payment on the one credit card you own could have wreaked so much havoc with your score, kind of the same way your English lit professor back in college docked you a full grade for one lousy typo.

So, before you take another step into the deep and mysterious world of credit, from which almost no one can escape, we want to share with you our basic credit score guide, taking you behind the curtain to explain exactly what a credit score is, why it's important, how it’s calculated, and how you can improve it to help you get the most bang for your borrowed buck.

What does your score really mean?

Whether you’re buying a home, a car or applying for a credit card, lenders -- the ones who will be extending the credit -- want to know the level of risk they’ll be taking on by lending you money. In a word, they want to know if you’re “creditworthy.”

Will you pay them back, and if you carry a balance will you pay them back with interest?

Through about the 1950s, lenders largely made these kinds of credit decisions subjectively.

They went with their gut. Then in 1956, in response to lenders like banks and retail stores that wanted a more precise and objective system for making credit evaluations, engineer Bill Fair and mathematician Earl Isaac formed the Fair Isaac Corporation in 1956, introducing its first credit scoring model two years later.

The company, however, didn’t roll out its FICO score until 1989. While today there are competing credit scoring models, such as systems from Vantage and CreditPlus, the FICO score is the standard credit score in the United States, used in more than 90 percent of lending decisions.

FICO scores range from 300 to 850, the higher the better. Scores are based solely on information contained in consumer credit reports maintained at the credit reporting agencies, the largest of which are Experian, Equifax, and TransUnion.

Because the information on file can differ from bureau to bureau, FICO scores also will vary slightly.

Although lenders will tighten or loosen their standards slightly to accommodate changing economic conditions, typically they lump borrowers into five categories, according to their scores.

  • Poor: 300-550
  • Subprime: 550-620
  • Acceptable: 620-680
  • Good: 680-740
  • Excellent: 740-850

According to the latest data released by, the average FICO credit score in the United States is 689, so America falls into the good credit range.

Typically, the higher the score, the more favorable the interest rate the borrower will be offered on everything from credit cards to auto and home loans.

So a borrower who falls in the 740 to 850 range will likely receive the lender’s best rate. A borrower in the “good” tier can expect the lender’s second-best rate, and so forth down the line.

The brackets are useful because they can also help lenders make “instant credit” decisions.

How Your Credit Score Can Affect Your Future Mortgage Rate

Credit Score Range 30-Year Fixed Rate Mortgage 5-year fixed rate mortgage 7/1 ARM
620-639 4.684% 4.016% 4.506%
640-679 4.138% 3.47826% 3.96%
660-679 3.708% 3.04% 3.53%
680-699 3.494% 2.826% 3.316%
700-759 3.317% 2.649% 3.139%
760-850 3.095% 2.427% 2.917%

How Your Credit Score Can Affect Your Next Car Loan

Credit Score Range 60-Month new Car Loan 40-Month Used Car Loan
500-589 14.824% 16.325%
590-619 13.74% 15.086%
620-659 9.398% 10.186%
660-689 6.747% 7.599%
690-719 4.656% 5.322%
720-850 3.331% 3.778%

How Your Credit Score Can Affect Your Next General Loan

Credit Score Range HELOC Home Equity Loan
620-639 10.680% 10.164%
640-669 9.180% 8.914%
670-699 7.680% 7.414%
700-719 6.305% 6.639%
720-739 5.055% 6.139%
740-850 4.680% 5.837%

How your score is calculated

While numbers are precise, what goes into making the three-digit credit score remains a little fuzzy.

Credit scoring isn’t as mysterious as sausage making, but in fact, the exact formula for producing a credit score remains a secret.

Like a closely guarded family recipe, each bureau manipulates the essential ingredients a little differently.

This much is known, however. Information, as mentioned, is pulled from your credit report.

Your credit report contains your social security information as well as your name, address, phone number, credit and loan amounts, payment records, collection accounts, and public records such as bankruptcies, liens and judgments.

Credit reports also contain a record of when your credit was last checked, either for a credit application (hard inquiry) or an account review (soft inquiry).

While a credit score is the compilation of many parts pulled from the credit report, some parts in the credit report are weighted more heavily.  

The most impactful categories are payment history (35 percent), amounts owed (30 percent), length of credit history (15 percent), new credit (10 percent), and types of credit used (10 percent).

Generally speaking, if you’ve shown a history of paying your bills on time across a range of different accounts and your account balances are manageable, you should have a solid credit score. That’s not always as easy as it sounds, as we’ll share momentarily.

What your score doesn’t consider

To eliminate subjectivity and increase objectivity, a FICO score does not take into account your race, color, religion, national origin, age, sex, marital status or where you live.

It also doesn’t consider your occupation, salary, title, employer, or employment history. Furthermore, it disregards any public assistance you might receive or child support payments you make.

Know your score

Everybody wants a higher score, because a higher score should give you access to lower interest rates and higher credit limits, should you need them. But to improve your score, you first have to know the score.

While you can receive a free credit report from each credit bureau every 12 months (go on, the reports do not include your credit score.

That doesn’t mean you should pass up this free option, however. Use each report to check for errors and inaccuracies and signs of identity theft. Also make sure the amounts owed for each of your open accounts is correct.

Should you find a discrepancy, dispute your case directly with the appropriate credit reporting agency.

To obtain your actual FICO scores, you can purchase them directly from for $59.85, which includes your FICO score and credit report from each agency.

Again, the scores likely won’t be the same because each bureau may collect and compute credit information differently, according to its proprietary system.

You can also take advantage of a free score if your bank or credit card issuer happens to offer this. (Citi and American Express both offer this.)

How to improve your score

To lift your score, treat your mission as you would a diet or a conditioning program. Prepare for a steady, grinding campaign, taking joy in lots of little successes.

While you can’t change your payment history, which accounts for roughly 35 percent of your credit score, you can at least resolve to tackle your current debts head on.

Your goal is to replace a poor payment pattern with a good one. If you continue to honor your current payment obligations, your past credit problems will fade with time, and your FICO will gradually rise.

How much debt you continue to carry accounts for 30 percent of your credit score. By whittling down and getting your balances under control, you again should see your credit score start to rise.

Adopt a budget and a payment plan for handling your debt.

Normally, you should try to pay off your highest balance first, but another camp believes you get a bigger psychological boost by closing out a smaller debt altogether.

Regardless of your approach, commit to a debt-reduction program and execute it. Repayment rebuilds credit.

As the length of your credit history accounts for 15 percent of your score, neither be in a rush to close existing accounts, especially with low balances, nor in a hurry to open new accounts, which will lower your average account age.

When you apply for new credit, which accounts for 10 percent of your credit score, don’t drag out your rate shopping over weeks or months.

Otherwise, your search for a single loan could be construed as a search for multiple credit lines, increasing your risk profile and damaging your credit score.

If, however, you request to check your own credit report, known as a soft inquiry, your score won’t take a hit.

Finally, your account will show a positive bump if you can show that you use credit responsibly across a mix of accounts, such as credit cards and a car loan.

This approach will score higher than if you were to stop using your cards altogether. At the same time, don’t start opening accounts simply for the sake of creating a better credit mix.

Getting the most out of your debt

Americans love debt. Most likely, it's what helped get you through college and your first set of wheels.

We may live in a credit-driven world, in “a mortgaged car over a financed highway on credit card gas,” but you don’t have to be a passive passenger.

How far you get down that road will ultimately depend on how well you read and react to that sign ahead flashing your credit score.