What Is Credit Score?
A credit score is a three-digit number — typically ranging from 300 to 850 — that summarizes a consumer's creditworthiness based on their borrowing history. Lenders use credit scores to determine loan eligibility, interest rates, and terms. The two dominant scoring models are FICO and VantageScore, each weighing payment history, debt levels, credit age, and other factors differently.
Key Facts
- The average FICO score in the United States reached 715 in 2024, according to Experian — up from 695 a decade earlier
- A 100-point credit score difference can mean 1.5–2 percentage points higher on a mortgage rate, adding over $100,000 in interest on a $350,000 loan over 30 years
- Approximately 16% of Americans have a FICO score below 580, which is classified as 'Poor' and makes conventional mortgage qualification extremely difficult
- A single 30-day late payment can drop a credit score by 60–110 points, with the damage persisting for up to 7 years on the credit report
- FHA loans accept borrowers with scores as low as 500 (with 10% down) or 580 (with 3.5% down), compared to the 620–680 minimum for most conventional loans
Live Data
How Is a Credit Score Calculated?
Credit scores are computed from data in your credit report using proprietary algorithms. The FICO model — used in over 90% of U.S. lending decisions — weighs five categories: payment history (35%), amounts owed (30%), length of credit history (15%), credit mix (10%), and new credit inquiries (10%). VantageScore uses similar factors but weights them differently, with payment history and credit age/mix carrying the most influence.
The exact formulas are trade secrets, but the inputs are well-documented. Missing a payment matters far more than carrying a moderate balance. And a long track record of on-time payments provides resilience — a borrower with a 780 score who misses one payment may drop to 700, while a borrower at 680 may fall below the 620 threshold that locks them out of conventional mortgages entirely.
Why Do Credit Scores Matter for Financial Distress?
Credit scores function as a gatekeeping mechanism for the financial system. When scores drop, borrowers face a cascading set of consequences:
- Higher borrowing costs: Subprime rates (offered to those below 620–660) are typically 2–4 percentage points above prime. On a $300,000 mortgage, this means $150–$300 more per month — money that comes directly from household budgets.
- Reduced access: Below certain thresholds, conventional lending options disappear entirely. Borrowers are pushed toward FHA loans (with mandatory mortgage insurance for the life of the loan), subprime credit cards (with 25–30% APR), or predatory lenders.
- Employment screening: Some employers check credit reports during hiring, creating a cycle where financial distress reduces income opportunities.
- Insurance pricing: Most states allow insurers to use credit-based insurance scores, meaning households under financial stress pay more for auto and homeowner's coverage.
The American Distress Index tracks this through multiple indicators. Credit card delinquency rates, charge-off rates, and the divergence between FHA and conventional loan performance all reflect how credit score thresholds sort borrowers into fundamentally different risk categories — and fundamentally different financial outcomes.
What Is a Good Credit Score?
FICO scores are grouped into five tiers: Exceptional (800–850), Very Good (740–799), Good (670–739), Fair (580–669), and Poor (300–579). For mortgage purposes, the key thresholds are 620 (conventional loan minimum), 680 (competitive conventional rates), and 740+ (best available rates). The gap between these tiers is not just about approval — it determines whether homeownership builds wealth or becomes a financial burden through elevated interest costs.
Frequently Asked Questions
What is a good credit score to buy a house?
Most conventional lenders require a minimum FICO score of 620, but competitive rates start at 740+. FHA loans accept scores as low as 580 with 3.5% down payment, or 500 with 10% down. The difference between a 660 and 760 score can mean 1–2 percentage points on your mortgage rate — hundreds of dollars per month.
How long does it take to rebuild a credit score?
Minor damage (a single late payment) typically takes 12–18 months of consistent on-time payments to recover from. Major events take longer: a foreclosure stays on your report for 7 years, bankruptcy for 7–10 years. However, the score impact diminishes over time — most recovery happens in the first 2–3 years.
Why do I have different credit scores from different sources?
You have dozens of credit scores because FICO and VantageScore each have multiple versions, and each credit bureau (Equifax, Experian, TransUnion) may have slightly different data. Mortgage lenders typically use FICO Score 2, 4, or 5 — older versions that may differ from the FICO 8 or VantageScore 3.0 shown by free monitoring services.
Does checking my own credit score lower it?
No. Checking your own credit score is a soft inquiry and has zero impact on your score. Only hard inquiries — triggered when you apply for new credit — can temporarily lower your score, typically by 5–10 points for about 12 months.
How does credit score connect to the American Distress Index?
Credit scores are the mechanism through which financial distress becomes self-reinforcing. As the ADI's Debt Stress indicators worsen — delinquency rates rise, charge-offs increase — millions of borrowers see score drops that push them into higher-cost credit, accelerating the distress cycle.