Your Credit Score, how it works and how to improve it......

Whether you are just starting out building credit or are looking to improve your credit score to get better interest rates on finance options, it can seem a pretty daunting mountain to climb at times. One of the problems a person encounters when first starting out on the road to building credit is the fact that few lenders will give you credit because you have no credit history. So how do you break free of this cycle? The following article breaks down what the score means, who decides it, who uses it, and how you can build a great credit score starting from day one.

Score Basic Facts

The credit score or F.I.C.O score, as it is commonly called, is what is used by lenders to determine how much of a risk it is to borrow you an amount of money. Anytime you attempt to purchase something on credit, the lender will check your credit history to see how you have handled repaying other lenders. Your credit history report will contain records on who you have obtained finance from, if you have always paid on time or not, and if it is paid off or still has a balance remaining. Your credit history will also have notes from companies you may have a bill paying history with, e.g. power companies, phone bills, landlords etc. All of this combined with your credit to debt ratio will be used to formulate a number which will decide what kind of risk you are considered to the lender, this will then enable the lender to assign an interest rate. As you can already see, having a good credit score is very important. F.I.C.O. stands for Fair Isaac Corporation, which is the company that developed the credit score system. The score ranges from 300 to 850, the higher your score, the lower the interest rates you are going to pay on any borrowing you might do. Your score is determined along these lines 35% Is your bill paying history. Have you always paid on time?  Have you ever been sent to collections? The worst thing you can have on your record is a Bankruptcy. Any mistakes you make no matter how severe will be looked at less harshly over time, but will ALWAYS be there. Its far better to never have them, than have them resurfacing time and time again over your lifetime and costing you a lot of money in higher interest rates. 30% Is your amount of money you owe and the amount of credit available. This is termed as your "Debt to Credit ratio" by some firms. The money you owe is compiled of such things as, loans, credit cards, mortgages, car loans, etc. The amount of credit available is for example having 3 credit cards of $1000 limit each. So lets say you owe $600 on each card your debt to credit ratio would be seen as owing $1800 to a $3000 limit. Carrying and repaying a balance of roughly 25-30% is widely regarded as a optimum figure to aid your credit score. Too high a balance loses you points as you appear as a higher risk, not using very often or at all influences your credit history points quota. 15% Is your Credit History Length. This relates to how long you've been using lines of credit and if its been with the same lenders or a variety in short bursts. The longer you've had credit history and the longer you've had a good track record with individual lenders the better it is for your score. 10% Is your variety of Credit. If over time you have a mix of Credit cards, Car loans, Mortgages, etc you are seen by lenders as having the ability to manage your finances well. One line of credit often advised against is store cards, this is often debated and will be covered in one of our upcoming articles to be posted soon. 10% Is your New Credit Applications. Anytime you apply for new credit it will be noted, approved or not. This can show that people are shopping for the best deal on a mortgage rate for example or if combined with a lot of recent bad payment history notes, that they are in financial trouble or even panic, and therefore a risk.

Your next step is to decide which category you are in below and click the link to go to the page which will give you the most relevant information to build your credit score based around your circumstances. School Graduates or College Students. Working Adults Business Owners or Self Employed New Residents of the U.S. Rebuilding or Repairing a Credit Score