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We all know good credit is a good thing. But it may surprise you to know how critical your credit score is to your future. If you’re thinking of borrowing money for a car, home or other major purchase, your credit score will determine if a lender is able to give you a loan, and how much interest you’ll pay. Auto insurance rates can also be affected by your credit score, and some employers even check credit scores before hiring someone to evaluate reliability. Below is more information to help you understand your credit score and to keep it on the up and up.

What Exactly Is a Credit Score?

Fair Isaac and Co. developed software in the 1980s to help lenders identify credit risks. Since then, their initials (FICO) have been associated with a person’s credit score. Your credit score is a number derived from your credit history. The three credit bureaus are Equifax, TransUnion and Experian, but keep in mind that you will likely receive varying credit scores from each credit bureau.

While your credit score is determined by your credit report, they aren’t the same thing. The biggest difference between the two is your score gives certain parts of your history more weight than others. A credit score breakdown looks like this:

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

All three credit bureaus will provide you with one free report every year, but your credit score may not be included in the report. You may have to pay a fee to see the actual score, which is represented by a number between 300 and 850. (source) is a government authorized website and will provide you with your annual credit report for free.


Maintain a Good Credit Score

1. Pay Bills on Time
This may seem obvious, but everybody knows at least one person who has trouble doing it. Setting up automatic payments for utilities, cell phones and other regular expenses is recommended to stay current on bills. If you aren’t comfortable with automatic withdrawals from your bank account, at least set up electronic reminders to keep you on track.

2. Only Get the Credit You Need
Applying for several credit cards or loans in a short period of time can make it appear that you are in dire economic straits. If you currently have enough credit for your circumstances, avoid applying for more credit cards until you absolutely need them.

3. Keep a Safe Distance from Your Credit Limit
Try to stay within about 30% of your total credit limit on your cards. Getting too close to “maxing out” will drop your score. On that note, experts also advise against closing out credit cards and transferring the balance onto one card. It isn’t necessary to rotate the cards you use, just make sure to pay off the statement balance each month.

4. Check Your Credit Report
Again, the three major credit bureaus will issue a report to you every 12 months, so take advantage of it. Checking your credit report will ensure you know whether the information in your history is accurate. If there are items on the report you don’t recognize, someone may have used your identity to open lines of credit. (source)(source)

Improve Your Score

If you find your credit score isn’t as high as you’d hoped, don’t worry. Improving your score takes time, but it isn’t as difficult as you may think. Aside from checking your report regularly and paying off as many debts as you can, here are three simple ways to improve your score:

1. Be Patient
A big ding on your history such as bankruptcy or a defaulted loan will take a while (usually between seven and 10 years) to be removed from your credit report. Regardless of those issues, the longer your credit history is, the better your score will ultimately be. It may seem like slow going, but trust that the longer you are making regular payments on credit cards and loans, the more your score will rise.

2. Charge Only What you can Afford
Only charge what you are capable of paying off each month. It’s important that you’re familiar with your credit card’s billing cycle. If your billing cycle has already closed for the month, then any purchases made will fall into the next billing cycle, and you won’t be required to pay those purchases until the following month.

3. Request More Credit
Many banks will extend the limit on a credit card upon request. Doing this will move you further away from your maximum credit limit, which improves your score. It may seem counterintuitive to try to improve your credit by simply asking for more, but what matters is how much wiggle room is between you and your credit limit. (source)

Your credit score will stay with you for the rest of your life, so its importance can’t be overstated. If you have a high score now, it’s up to you to pay your bills and keep your credit card balances as low as you can. If your score needs some work, rein in your spending and remember the process will take some time. No matter what, check your report frequently.

Do you have any tips for keeping a good credit score? Ever had to repair a bad score? Tell us your story in the comments below.

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