Your credit score determines a lot about you financially. It determines what kind of loans you can get and how much interest you have to pay. It determines how high your credit limits are and if you can purchase or lease a vehicle. With good credit you have more options when it comes to financing. Poor credit leaves you with few options, if any. Make sure you understand that pesky little score that usually ranges from 300 to 850. You’ll be able to take steps to improve your credit rating today.

What is a credit score?

A credit score is a way of assessing how likely a person is to pay back a loan. A credit score may also be known as a FICO score – the Fair Isaac Co. developed it. A score is determined by taking into account a person’s payment history. It does not take into consideration savings, income or other financial assets. The score was created after extensive research revealed that a pattern in payment histories that could predict whether or not a person would be able to pay back a loan as agreed upon.

What factors influence a credit score?

There are five main factors that influence your credit score. You can positively and negatively affect your score with each purchase. So, every good credit decision you make can help raise your FICO score.

1) Payment History: This factor makes up just over a third of your credit score. Since a credit score is supposed to determine how likely you are to pay back a loan, it’s important to see your track record. If you have made almost all of your payments on time, this will positively affect your score. A good payment history can often reduce the damage done by late payments, unless you are late on a mortgage payment.

2) Amounts Owed: This is the second most important factor, making up just under a third of your credit score. A financial institution needs to know how much money you owe to others before they can asses if you’ll have the funds to pay them back. Institutions use complex mathematical equations to determine your financial standing.

3) Length of Credit History: Another important factor is how long you’ve been building credit. This makes up less than a fourth of your overall credit score. This is why it’s important to start building credit at a young age – and doing so appropriately. The longer you’ve had established credit and have paid back monies owed, the more likely you are to do so in the future.

4) New Credit: Opening several new credit accounts in a short period of time could place a red flag on your credit report. If you’re just starting to build credit, opening several new accounts in a short time can penalize your credit score. This often shows that you’ve already over-extended yourself financially.

5) Types of Credit in Use: A good mix of accounts – mortgage, small loan, retail accounts, and credit cards – positively reflects on your credit score. But don’t go out and open a bunch of accounts just to improve your credit score. This often hurts your score, actually. Seek different types of credit as you need them, but keep in mind that a variety gives a better idea of what type of score you deserve.

What is a good credit score?

The general number that designates a good credit score is 620. If you score over 620, you’re eligible for good interest rates and higher extensions of credit. If your score is below 620, you have to pay higher interest rates and will be extended less credit. The higher your score, the easier it is to borrow money at a low interest rate. The average credit score is between 600 and 700, but it can fall anywhere between 300 and 850, even though the range is from 150 to 930.

How can I look at my credit score?

While you can view a free credit report, you usually have to pay one of the three credit bureaus for your FICO score. There are several websites that offer you a free credit report and score, but usually only on a one-time basis. It’s a good idea to look at your credit report to make sure that all the information is accurate. Here are several ways you can view your credit report and get your credit score rating:

The three credit bureaus:

• Equifax – 800-685-1111
• Experian – 888-322-5583
• TransUnion – 800-888-4213

To get a free online credit report:

• TrueCredit.com
• FreeCreditReport.com
• CreditReport.com

How can I improve my credit score?

To improve your credit score, you should first take a look at your credit report to check it for accuracy. Many times you’ll find that there are additional accounts listed under your name. They might belong to someone else or a family member. It’s important to properly dispute these errors on your credit report to the three credit bureaus (Equifax, Experian and TransUnion).

Once you are satisfied that your credit report is accurate, take a look at the four factors provided on your credit score report. These four factors will give you a starting place on how to improve your credit score. Here are nine common factors given on credit reports to explain your rating:

1) Serious delinquency: You have one or more accounts with records of late or non-payment.

2) Serious delinquency and public record of collection filed: You have one or more accounts that have been turned over to a collection agency.

3) Time since delinquency is too recent or unknown: You have one or more accounts that are recently overdue or the due date is unknown.

4) Level of delinquency on accounts: You have accounts that are more than 60 to 90 days overdue.

5) Number of accounts with delinquency: You have several accounts that are overdue.

6) Amount owed on accounts: You owe too much money for your determined “credit.??

7) Proportion of balances to credit limits on revolving accounts is too high: Your credit card balances are too high.

8) Length of time accounts have been established: You have not had credit long enough for a proper rating to be established.

9) Too many accounts with balances: You have overstretched yourself financially by having too many accounts with balances.

In short, pay all of your bills on time, check your credit report for accuracy, and use the list above to correct your credit problems. Then you’ll be on your way to repairing your credit score. It will take some time, but it is never too late to improve your credit rating.