The Fundamentals Of Your Credit Score

You might know what it means to have a bad credit score ' but do you know what goes into your credit score

, and how certain bits of information can have a negative impact on your credit rating? If you're looking to improve your credit score, it helps to know what financial institutions and lenders are looking for with your credit score, and how this can affect a loan application for a credit card, personal loan or even a mortgage. If you want to get a better credit score, then this is the information you need to know before heading into battle. So don't scratch your head wondering what factors determine your credit score; instead, study up on this credit-reducing moves so you'll know what NOT to do when attempting to improve your score.

Remember all of those math classes you had to take in school? They're about to come in real handy here, as your credit score can be reduced to a simple formula. The majority of your credit score (35%) is composed of your payment history - if you pay on time, and if not, how far behind have you been on late payments. That's why it's extremely important to pay all of your bills on time, as this lays the foundation towards improving your credit score. Delinquent accounts - i.e. payments that are more than a month overdue - are understandably more debilitating for your credit score than a payment that's a couple of days late. If you ever get to the point where you're going to be a month overdue on a bill, be sure to discuss repayment options with your bank or lender to avoid losing a sizable chunk of your credit score.

Next, 30% of your score comes from your available and outstanding credit. Simply put, the more debt you have, the lower your score will be - so don't let yourself carry a debt on your card from month to month, as this will only drag your credit score further into the gutter! The three lower factors in determining your rating are as follows: your length of credit history (15%), new credit lines (10%) and types of credit (10%). As you can see, it's not just late payments that can sink your rating, so it's best to pay attention to not only the timely payment of your bills, but the types of credit you have and how much debt you carry. Additionally, new credit users will have to deal with having a lower credit score for the first five years - since lenders and banks have no history to prove whether or not you're financially responsible, lenders treat new credit users as high-risk consumers, just like those individuals with poor credit.

If you want to boost your credit rating, it's important to first understand what factors go into your score, and how this can change from month to month. Understanding what improvements will have a bigger effect on your score ' and what moves are big wastes of energy ' is the best step that will fix that low credit score once and for all!

by: Phil Waterton

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