Global Finance · Chapter 22
Credit Scores and Borrowing
How credit scores work, why they matter, and how smart borrowing decisions shape your financial future.
What Is a Credit Score?
A credit score (300-850 in the US) is a numerical representation of your creditworthiness, based on your borrowing and repayment history. Lenders use it to decide whether to approve loans and at what interest rate.
FICO Score factors: Payment history (35%), amounts owed (30%), length of credit history (15%), new credit (10%), credit mix (10%).
Credit Score Ranges
| Score | Rating |
|---|
| 800-850 | Exceptional |
| 740-799 | Very Good |
| 670-739 | Good |
| 580-669 | Fair |
| 300-579 | Poor |
Real impact: A borrower with a 760 score might get a mortgage at 6.5%, while someone with a 620 score might pay 8.5% — a difference of tens of thousands of dollars over a 30-year loan.
Smart Borrowing Habits
- Pay bills on time, every time — this is the single biggest factor
- Keep credit utilization below 30% of your limit
- Don't close old credit accounts (length of history matters)
- Only apply for new credit when necessary
Chapter 22 Summary
- Credit scores range from 300-850 and predict creditworthiness
- Payment history is the largest factor (35%)
- Higher scores mean lower interest rates and significant savings
- Pay on time and keep utilization low to build strong credit