In light of those facts, what can you do to improve your credit score?   Well first of all, let’s talk about how your credit score or FICO score  is determined.

What is a Credit Score Based On?

A FICO score (or credit score) is a formula created by the Fair Isaac Company, which has recently changed its name to FICO, that uses the information from your credit report to determine how credit worthy you are. 

Your credit report information, which is compiled by the three major credit reporting agencies (Equifax, Experien and TransUnion) is weighted according to the following breakdown of importance:

• 35% – Payment History
• 30% – Total Amount Owed
• 15% – Length of Credit History
• 10% – New Credit
• 10% – Type of Credit Now Being Used

As you can see from the list above, your payment history carries the most weight when it comes to determining your credit score.

What to Do to Improve Your Credit

Since your payment history carries so much weight in determining your  FICO score, the easiest way to improve your score is to pay your bills on time.   Late payments will stay on your credit report for 7 years, affecting your score for a long time.  Paying your bills on time should be a priority.

Another way to improve your score and make it easier for you to get a loan with a great rate is to reduce the total amount you owe.   The amount you owe on credit cards, personal loans, student loans, auto loans and any other financing as well as your Debt to Income percentage will be used by lending institutions to determine if you get a loan, and if so at what rate.

So, if you’re looking to buy that dream house, condo or coop pay your bills on time, and keep the amount you owe to a minimum, and you’ll see your FICO score climb and the interest rate you’re required to pay fall.