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The 5 Building Blocks of a Credit Score

No one ever says, "Hi, I'm an 820."

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Jon Acuff is a staff writer for AutoTrader.com.


You never introduce a friend by saying, "Have you met Carol? She's a 680." Yet, given the importance a credit score can have on your ability to get a credit card, vehicle and home, it's surprising more people don't talk about this small but significant number.

What is a credit score?

A credit score is simply a figure lenders use to help determine whether they are willing to offer you credit. They take a variety of factors into consideration when making that decision, but a credit score gives them a fast, fairly objective indication of your credit risk.

One of the most commonly used scores is the Fair, Isaac & Co., or FICO, score. This score is built from both the positive and the negative information found in your credit report. To learn more about what's included in your credit report, please read our Quick Guide to Credit Reports.

FICO scores range from 300 to 850. The lower the score, the less likely you are to get competitive interest rates. The higher the score, the greater your chance to get optimum rates. A higher score can therefore translate into significant savings.

One of the examples Fair Isaac offers on its website is the monthly payment difference that might exist between two car shoppers with 36-month auto loans for $30,000. Someone with the highest score range of 720 to 850 with an interest rate of 7.15% would be charged a monthly payment of $929. Someone with a lower score ranging from 500 to 589 with an interest rate of 15.12% would be charged a monthly payment of $1,042. With the higher score you'd save more than $110 every month.

The three main US credit reporting agencies use slightly different versions of the FICO score. Each score, however, is based loosely on the same 5 building blocks of information:

1. Payment history

Accounts for roughly 35% of your score.
Since past behavior is often an indicator of future behavior, lenders like to see that you have a track record of paying bills on time. Payment history is one of the most important portions of your score, encompassing information from credit cards, installment loans, mortgage loans and more. Details on public record items such as bankruptcies, foreclosures, lawsuits, wage attachments, liens and judgments are included. Payment delinquencies—specifically, how many times you were late, how recently you were late, and how long you were late—also play a large role.

2. Amounts owed

Accounts for roughly 30% of your score.
"How much more credit can this individual handle?" That's the question this portion of information attempts to answer for lenders. Outstanding balances you have on credit cards and installment loans will be carefully considered. Think about how much progress you've made on open installment loans. How many of your accounts have balances? How close to the limits are your credit cards? These are points that help lenders see that you are not overextended and can responsibly handle additional credit.

3. Length of credit history

Accounts for roughly 15% of your score.
This building block factors in how long your accounts have been active and how long it's been since you used each one. It considers the age of your oldest account and your newest account, and then the average age of all of them. You can't rush credit history, but even if you're new to credit you can get a good score depending on the strength of the rest of the information in the credit report. For instance, timely payments on a few young accounts can help offset a short history.

4. New credit

Accounts for roughly 10% of your score.
Credit counselors often tell clients to go slowly when opening new credit accounts, and for good reason. Applying for lots of new credit in a short period of time is an easy way to negatively impact your score, especially if you have a limited credit history. This building block looks at how many new accounts you have, when you last opened one, how many recent requests you've made and how long it's been since a lender made an inquiry. On the positive side, this building block makes note of recent good credit behavior to help lessen the harm of payment problems in the past.

5. Types of credit in use

Accounts for roughly 10% of your score.
Generally considered the "credit mix" building block, this portion of your score looks at the variety of lending types you have experience with. It considers credit cards, retail accounts, mortgage loans, installment loans and finance company accounts. Of all the building blocks, this is the one that carries the least weight if the other four are solidly established. Don't open a new account just to improve your "mix."

What information is not used to build a credit score?

Now that you're familiar with the 5 building blocks of a credit score, it's equally as important to know the types of information the credit reporting agencies will not use to create your score:

  • Income
  • Education
  • Marital status
  • Job or length of time at your current job
  • If you've been turned down for credit
  • Length of time at your current address
  • Whether you rent or own your home
  • Information not mentioned in your credit report

Although your credit score will not be impacted by these items, a lender may look at them when assessing your loan application. A lender might consider your income, employment history, the type of credit you're applying for and a number of other factors, in addition to your credit score.

Keep in mind though, the credit reporting agencies and lenders will not consider your age, race or sex when building a credit score or deciding whether to approve your loan.

Next Steps

As with any aspect of credit, scoring is a personal issue based on your unique information and financial history. We suggest you work with one of the three main US credit reporting agencies to learn more about your credit score. Each agency offers an assortment of products and services that can help you do everything from understand your credit report to protect yourself from the dangers of identity theft.

There are several easy ways to get the information you need online. We encourage you to continue your credit exploration with a visit to Equifax, AutoTrader.com's preferred credit monitoring provider.


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The 5 Building Blocks of a Credit Score