Some of the Best Ways to Improve Your Credit Score

Before we can focus on improving your credit score, you must first understand a little bit about your score, how it relates to you and how it is calculated. Your credit score is a number calculated by a very complex formula, created by Fair Isaac Corporation. This Score is known as your FICO score. Three main credit bureaus monitor your credit history and use this formula to keep your score up to date- these companies are named Experian, Equifax, and TransUnion. Things such as payment history, total lines of credit open, total percentage of your lines of credit that were used and still owed- All have an impact on your score. The number the FICO formula generates ranges from 300 to a maximum of 850, you general start out with "no credit" at the 600 mark. There are many websites on the internet at which you can receive your credit score and review your history to check it for errors- usually for a small fee. There is also a government run website,www.annualcreditreport.com, that provides the FREE yearly credit report that you are entitled by law.

Ever try to get a new car, or any other loan and the bank said no? If they didn't explain it to you, its probably because your credit score was insufficient or your credit history wasn't long enough for them to be comfortable loaning you money. Every financial institution looks up your credit score to help them decide if you're trustworthy enough to lend money to. Sometimes companies may even check your credit score to decide if they want to hire you or not. Its almost like a financial background check of sorts.

Okay, so my credit score is in bad shape. What do i do now!? Well, don't freak out just yet! There are ways to dig yourself out of this hole and it may be a lot easier than you think!

Here is a generalized breakdown of the things creating your score:

• Payment History – 35%
• Total Amounts Owed – 30%
• Length of Credit History – 15%
• New Credit – 10%
• Type of Credit in Use – 10%

To every problem is a solution. However, you can never improve something without fixing its flaws first. This holds true with your credit report and score. Adding lines of credit and making payments on time (we'll get to this in a bit) will have a significantly smaller impact if you still owe $3000 to (insert creditor's name.) So in order to move forward and improve your score, you must pay off your owed debts. By this I mean delinquent debts. Debts that you are seriously overdue on paying, this doesn't include debts that you are religiously paying on- like if you still owed $5000 for your car loan, but were never late on a payment. Clearing your credit report of delinquent accounts, to include accounts sent to collections agencies, will have a very positive effect on your score.

Managing your currently existing lines of credit can be tricky and require acute attention to detail at times. When it comes to reciprocating or revolving lines of credit- things that you could spend more at will, then pay them off over time, like credit cards for an example, it is said the best way is to keep under 20% of your total credit limit spent. So if you have a line of credit, with a maximum of $1000, you want to stay under $200 dollars owed. But at the same time you don't want to have is so that you owe nothing to the creditor as well, this could actually have a negative impact on your score, as your score is a direct reflection of how well you are at paying back money others lend you.

The best thing to do is to spend small amounts (around 10% to 15% of your credit limit or so) and pay it off slowly as you pay your monthly bill's minimum payment. When you reach nearly 3-5% of your total limit, go buy something else and bring it back toward 10% And make sure you are on-time with your payments. You could do this with anything- a carton of cigarettes, a tank of gas, etc.

A major factor in a financial institution's decision to lend or not to lend, is your credit history. By this I am referring to how long you've had credit, for how long other institutions have been lending you money. The best thing to do here is keep your old accounts open, active, and in good standing. If you follow the advice in part two, this portion should be a cakewalk. If you absolutely must close some of your credit accounts, close the newest account first, and work your way backwards, but do so in a slow manner. Don't just close 4 of your 5 credit cards overnight. If you were to close your oldest, this would decrease your credit history- significantly reducing your score.

While it is important to have open lines of credit, and to maintain their activity and up to date payments, don't run off and open 10 new credit cards now! Warning! If you were to apply to receive a lot of loans and credit cards in a short period of time, the banks will view this as a sign of financial distress and it will negatively effect any credit decisions. However, they will see if they're all in a relatively short time span, such as shopping around for interest rates for loans or credit cards, and it can usually be overlooked.

I know, you think you're getting one over on the system by paying your Visa with your Mastercard and vice versa every month don't you? Well, you're not, sorry to break this to you- your creditors see this and usually won't report it as a good mark- which is what you need. When you pay all or some of your credit card bills with another card, this is known as consolidation. Consolidation is simply taking all your debt, and moving it to one specific card. The only time this is useful is for manipulating interest rates. Say you have 3 cards with interest rates of 15% but your 1 card has a rate of 9%, taking the outstanding balances from your 15% cards and putting them onto your 9% car has a clear benefit of saving 6% interest.

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