The Financial Factors That Drag Down Your Credit Score
A low credit score can make taking out a bank loan, credit card, or even a lease on an apartment a real challenge. However, if you know the financial factors that drag down your score, you can rebuild your credit.
In this article, we’ll look at the different components of the FICO score — the most commonly used credit model — how to improve your credit score, and what kind of loans you can get while rebuilding your credit.
The Financial Factors That Impact Your Credit Score
The FICO credit model assesses a person’s history as a borrower. It looks at four main financial factors:
- Your payment history
- Your total amount of debt
- How long you have been using credit
- The kinds of credit or loans you have used
Each of these credit score factors has an impact on your score. Scores range between 350 to 850. A score in the low 600s and below is considered “bad” or “poor” credit.
Payment History (35%)
This has the most significant impact on your credit score among all the financial factors. It shows whether or not you make your payments on time and if you have any records of bounced checks or credit cards that were “frozen.”
The only way to improve payment history is to pay on time consistently. You can do this by managing your budget and prioritizing credit card and loan payments. You can also avoid accidentally missing payments by setting up notifications or arranging for an automatic debit of the payment from your bank account.
Total Amount Owed (30%)
This is also one of the financial factors that will significantly affect your credit score. It looks at your debt amount and how much it compares to your total credit limit. So, maxing out your credit cards can lower your score because you are using up all your available credit.
This is also why it’s not always a good idea to cancel all your credit cards except for one. When you pay off your cards, keep them “open,” and don’t use them! You are lowering your total available credit limit.
Years Of Credit History (15%)
One of the biggest misconceptions about debt is that you should avoid it at all costs. However, there is such a thing as “good debt” that not only helps you meet a financial goal but can also build two crucial credit score factors: years of credit history and payment history (mentioned above).
Lenders need to analyze several financial factors to base your score on. If you have no records of taking out loans or another kind of credit, then you will have “a thin credit file.”
That doesn’t mean you should borrow many for the sake of it or use it for impulse purchases. You must manage your money responsibly and establish a history of paying off debt on time. Remember that your payment history has a more considerable weight than your credit history.
Also, if you choose which credit cards to keep open, always select the one you’ve had the longest. If you cancel those accounts, you lose the credit history attached to them.
New Credit Inquiries (10%)
This is one of the little-known financial factors that drag down your credit score. When you apply for a new loan and lenders do a credit check and deny your application, you can lose as much as five points per inquiry.
That’s why it’s not good to blindly send out loan applications or apply for several credit cards simultaneously.
And if you have a low credit score, don’t go to a bank that requires a high minimum credit score. Instead, you can approach a lender like Tennessee Title Loans, Inc. We offer a bad credit title loan for borrowers from all credit backgrounds.
Credit Mix (10%)
This refers to the kinds of credit you have used:
- Credit cards
- Short-term loans
- Long-term loans
- Installment loans
While it’s not that significant compared to other credit score factors, having a good credit mix can show lenders that you know how to handle different kinds of loans and have proven your ability to manage your money.
How To Get A Loan When You Have Bad Credit
Knowing the financial factors behind your credit rating can help you identify areas to improve your credit history. It may take a few years to achieve “good credit,” but every time you take out a loan and pay it on time, you take a step in the right direction.
But you may ask, “How can I take out a loan and prove my payment history if I’m always denied because of my score?” One option is to take out a secured loan, using your paid-off, lien-free vehicle title as a security or guarantee.
Tennessee Title Loans, Inc. offers a bad credit title loan from $300 to $2,500. Our bad credit title loan can help you in times of financial need.
Most loans require a lot of paperwork and proof of income and employment, but our requirements are quite simple:
A valid ID: A driver’s license or state/government-issued ID (passport)
A lien-free title: You need to own a car or truck with a lien-free title. That means you’re not using the title as collateral for other loans, and no claims or court judgments are placed against it.
Your vehicle: We will quickly inspect your vehicle’s make, model, and condition. This will help us determine the loan amount if you’re approved.
Start The Bad Credit Title Loan Process Today!
While many financial factors that impact your credit score, you can still inquire about a bad credit title loan today! At Tennessee Title Loans, Inc., our title loan process is quick and easy.
You can finish your application in less than an hour, and if eligible, you will receive your emergency money the same day or the following business day.
Our loan representatives are now on standby! Fill out our online form to start the bad credit title loan process today!
Note: The content provided in this article is only for informational purposes, and you should contact your financial advisor about your specific financial situation.