Financial Education · Credit & Debt

Credit

Your credit score is a three-digit number that controls your cost of borrowing for decades. A 760 vs. a 620 isn't just a number — it's tens of thousands of dollars in interest on a mortgage, whether you get approved for an apartment, and the difference between a 5% car loan and a 14% one. Most people treat credit as something that just happens to them. It's actually a system with clear rules, and once you understand the rules, the score becomes something you manage with intention.

What it covers

The FICO score (the one lenders actually use) has five components: payment history (35%), credit utilization (30%), length of credit history (15%), credit mix (10%), and new credit inquiries (10%). Utilization is the percentage of your available credit you're using. Lower utilization goes with higher scores. Payment history is the biggest factor: on-time payments count for the most. A secured credit card (one backed by a cash deposit you put down) is a common way people start a credit history from zero. Hard inquiries (when a lender checks your credit for a loan application) temporarily lower your score; soft inquiries (like checking your own score) don't affect it at all.

Why it matters

A 1% difference in mortgage interest rate (6% against 7%) on a $400,000 30-year mortgage is about $260 a month. Over 30 years, that's about $95,000. The score's effect repeats every time you borrow. Good credit also affects things you might not expect: some employers check it for certain roles, landlords use it for rental applications, and insurance companies in some states use credit history to set premiums. Bad credit costs you money silently in ways that add up for years.

Key terms

FICO Score

The most widely used credit scoring model, ranging from 300 to 850. Below 580 is poor, 580 to 669 is fair, 670 to 739 is good, 740 to 799 is very good, and 800 and up is exceptional. Lenders use this to determine loan eligibility and interest rates.

Credit Utilization

The percentage of your total available credit that you're currently using, calculated across all cards and for each card. It makes up about 30% of a FICO score, the second-largest part after payment history. Lower utilization goes with higher scores.

Payment History

Whether you've paid your bills on time, every time. The single biggest factor in your FICO score at 35%. One missed payment can stay on your report for 7 years and significantly damage your score.

Hard Inquiry

When a lender pulls your full credit file to evaluate a loan or card application. Temporarily lowers your score by a few points. Stays on your report for 2 years. Multiple mortgage or auto inquiries in a short window usually count as one.

APR (Annual Percentage Rate)

The yearly cost of borrowing, including interest and fees. A card with 24% APR costs 2% per month on any balance carried over. A balance paid in full by the due date is usually charged no interest.

How GenHedge connects

Credit isn't one of the markets GenHedge tracks, but macro conditions connect to it constantly. When the Fed raises interest rates, the prime rate (the base rate banks charge their most creditworthy borrowers) rises and credit card APRs follow it. When the 10-year Treasury yield (the interest rate the U.S. government pays to borrow for ten years) moves, mortgage rates tend to follow. The Macro and Bonds markets in the weekday Premium newsletter track the forces that set what borrowing costs.