five factors of credit score

The 5 Important Factors Of A Credit Score

When it comes to your credit score, it’s one of the most important indicators of your financial well-being. And while it’s just one number, there’s a lot that goes into its calculation. Knowing what 5 factors of credit score come together to give you your credit history is important when you want to work on your credit score. Read this guide to learn more about what makes up your credit score.

What Is A Credit Score?

There are a few types of credit scores, with the most common being the FICO (Fair Isaac Consideration) score – which always ranges from 300 to 850. Lenders use the scores to determine your creditworthiness. In other words, that's how likely you are to pay back a loan responsibly. Anything under 650 is not seen favorably. Anything 750 and up is considered excellent.

Your financial future is often dictated by your score. It can impact the type of mortgage you qualify for — or if you can get a mortgage at all. It’s a factor in qualifying for credit cards and can dictate your interest rate. Your FICO score is used by an estimated 90% of America’s top lenders, including the top three credit bureaus in the United States: Transunion, Equifax, and Experian.

woman sitting in chair think about credit score with text 5 important factors of a credit score

The Five Important Factors That Determine Your Credit Score

1. Payment History

Universally seen as the top of the 5 factors of credit score computation, payment history reportedly makes up 35% of your FICO score. Payment history is just that — your entire history of payments on credit cards and other loans. Unfortunately, missing just one payment may lower your credit score. So it is important you stay on top of your payments to make sure you make them on time.

2. What You Owe

The amount you owe is a close second in the list of 5 factors of credit score determination. What you owe refers to all the debt you currently have that is outstanding – or still remains to be paid. What you owe accounts for 30% of your score; the lower your outstanding debt, the higher your credit score will generally be. Credit utilization ratios fall under this category.

Your credit utilization ratio is determined by dividing the entire amount of credit you are using by your credit limits. The goal is to use no more than 30% of the credit that’s available to you at any given time. If your credit utilization ratio is anything over 30%, creditors usually do not see that as favorable – which will then create hurdles for you if you ever need a loan.

3. Credit History

The next on the list of 5 factors of credit score is your credit history – or how long you’ve had credit in your name. Usually, credit history accounts for 15% of your FICO score. It usually includes information such as the ages of your oldest and newest credit accounts, as well as your accounts’ average age. Your credit score is usually higher if you have a longer history of credit.

4. Type Of Credit

The type of credit you have is also one of the important factors that determine your credit score. Accounting for 10% of your FICO score, the type of credit is a part of the list of 5 factors of credit score because experts say you should have a good mix of accounts. In fact, those with the most diverse mix can be seen as having the best credit scores. These accounts include credit cards, student loans, and mortgages.

5. New Credit

Another 10% of the FICO score considers any new type of credit you’ve applied for. Most of the time, your credit score will go down when you apply for new forms of credit. That’s called credit inquiries. There are some exceptions though. When you’re comparison shopping for student loans or mortgages, the scoring counts it all as one inquiry, even though you are weighing options for multiple lenders.

person looking at credit score on phone

Pursue A Car Title Loan Even With Poor Credit

Knowing the 5 factors of credit score can really help you when you are trying to improve your score. But, when you encounter a financial emergency, you shouldn’t have to worry about whether your credit score will get in the way of getting the help you need. That’s why we at Tennessee Title Loans, Inc. won’t automatically disqualify you for a car title loan if you have poor credit.

In as little as 30 minutes, you can find out if you qualify for a car title loan of up to $2,500 even if your credit is not where you want it to be. To learn more about our loan, fill out the online form on our website and one of our representatives from the nearest Tennessee car title loan locations will give you a quick call to guide you through the process and help you officially get started.

Learn All About Your Credit Score Today

Understanding the 5 factors of credit score formulation can go a long way to securing your financial security. Make sure you use this guide so you can truly understand what goes into determining your credit score. Also remember that if you have poor credit, you don’t have to let that stop you from getting a car title loan. Fill out the online form to get started on our process right away.

Note: The content provided in this article is only for informational purposes, and you should contact your financial advisor about your specific financial situation.

Daniel Dewitt

Daniel Dewitt is a lifetime blogger with a finely-honed ability to break down, analyze, and interpret economic trends for the layman. He's fiercely invested in spreading financial literacy and helping everyday people gain the tools they need for their own economic success.