---
title: Credit score — what it means and why it matters | Allocate AI
description: A three-digit number, usually 300 to 850, that summarizes how reliably you have handled borrowed money; lenders use it to set rates and approvals.
canonical: https://allocateai.io/glossary/credit-score
site: Allocate AI — https://allocateai.io
---

# Credit score

A three-digit number, usually 300 to 850, that summarizes how reliably you have handled borrowed money; lenders use it to set rates and approvals.

A credit score is a lender's shorthand for how likely you are to repay. The most widely used, FICO, runs from 300 to 850. Above 740 is generally considered very good and earns the best mortgage and auto rates; 670 to 739 is good; below 620 makes many loans expensive or unavailable. VantageScore is a competing model on the same scale.

Five things go into a FICO score. Payment history is the largest at about 35%: whether you paid on time. Amounts owed, mostly credit utilization, is about 30%. Length of credit history is about 15%. New credit, meaning recent applications, and credit mix, meaning having both cards and installment loans, are about 10% each.

The score is not a measure of wealth or income. A high earner with a late payment and maxed cards can have a worse score than a student with one small card paid on time for three years.

The money at stake is real. On a $400,000 30-year mortgage, the rate difference between a 760 score and a 640 score can be over a full percentage point, which is roughly $250 a month and $90,000 over the life of the loan.

The common mistakes are missing one payment (a single 30-day late can drop a good score by 60 to 100 points and stays on the report for seven years), closing old accounts, and applying for several new cards right before a mortgage. Checking your report at annualcreditreport.com is free and catches errors, which are common.

## Related terms

- [Credit utilization](https://allocateai.io/glossary/credit-utilization) — The share of your available credit you are using, measured on your statement date; keeping it under 30% and ideally under 10% helps your credit score.
- [DTI (debt-to-income ratio)](https://allocateai.io/glossary/dti) — Your total monthly debt payments divided by your gross monthly income; lenders use it to decide how much mortgage or loan you can carry.
- [Refinance](https://allocateai.io/glossary/refinance) — Replacing an existing mortgage with a new one, usually to get a lower rate, change the term, or pull out cash from home equity.
- [Closing costs](https://allocateai.io/glossary/closing-costs) — The fees paid to finish a home purchase or refinance, typically 2% to 5% of the loan amount, covering the lender, title, appraisal, and prepaid items.

**Plan in plain language.**

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Allocate AI is a budgeting and financial-planning app: link your accounts, say what you want in plain words, and it writes the plan and stages every change for your approval. Read more at https://allocateai.io or see all pages in https://allocateai.io/llms.txt.