Your credit score or FICO score affects your entire life and is one of the most important things to take care of.  It determines how likely you are to pay back a loan.  This number is generated through a series of records kept in your credit file over a lifetime.  A person with a high credit score at 850 is much more likely to pay their loan back than someone with a low score such as 300.  A person with a high score has been on time for every payment, and has kept a good track on their credit.  A low score is determined when someone has not made payments on time for credit cards, loans, house payments, or any other payment in the past. 

The reason this score is so important is that it determines what type of rates that will be available for you as a borrower.  Someone with a higher score will have a much easier time receiving a car loan as someone with a low score who has shown that they cannot make payments on time in the past.  If you have a credit score above 700, you will receive low interest rates, and depending on how high your score is the lowest.  However, if your credit score falls below 600, then you will receive high interest rates, if they even give you a loan at all.  This is because in the past you have shown that you are not good at making payments on time.

There are three main credit bureaus that are required by the Fair and Accurate Credit Transactions Act to give you a free credit report once a year.  The website www.annualcreditreport.com allows you to enter your information and receive credit reports from all three of these bureaus.  The three credit bureaus that you will be working with are Experian, Equifax, and Transunion.  They are well known companies that track all of the information about your credit – good and bad.  What will be listed is the type of credit, the length of history with each lender, if anything is owed, and how all of this damages or strengthens your credit score.

Now that you know more about credit scores, this is how to improve your credit score!

Step One: Use credit cards! But make sure you make payments on time. Having a credit card looks better than not having one to lenders, but only if you pay them off.  Not having a credit card means that your ability to pay back loans is a mystery. This means they have no idea because it has not been recorded in your credit report.

Step Two: Keep balances low. Taking your credit card to its max will only make it harder to pay off, and in return make interest rates higher as well as considerably lower your credit score.  Pay the bills as they go, and use your credit card only when you can pay back your debt.

Step Three: Pay your bills before they are due.  This looks great to someone that wants to lend you money, right?  They will never have to worry that you will not pay your loan if they see that every month your bills are paid on time in full.  Your credit score can be raised significantly in only one month with this method.

Step Four:  Do not sign up for more credit cards than you need. Not only is there the possibility of hidden charges and fees for not using the credit cards that were unnecessary, but they can also damage your credit score.  Also, your account age will decrease, which hurts all of the hard work you put into building up credit cards you really need.  Stick with what you can manage and what you can pay off.

Step Five: A closed account does not just disappear.  Make sure that there are no payments left with the account before it is closed.  Chopping up a credit card makes it no longer usable – but the debt is still there