Improving Your Credit Rating

Although there are small differences between the way each of the three credit bureaus may calculate your score, the following breakdown gives a good approximation of the elements that make up your credit rating.

• 35% is based on your payment history with existing creditors.
  Have you been on time with all your payments? Frequently late or delinquent?

• 30% is based on how much you currently owe to your creditors.
  There's nothing wrong with having existing debts, but if you've extended yourself too far new creditors will want to know.

• 15% on the total amount of time you have had a credit history.
  This is one of the reasons having no established credit can make getting a loan almost as difficult as having bad credit. Prospective lenders like to see that you have a good track record, so it's good to have 'established' your credit.

• 10% on the amount of new credit you've asked for.
  Each time you apply for new credit there's a note of it in your report. Too much new credit can be a sign of financial troubles.

• 10% on the types of credit used.

Once you have a general idea of how your FICO score is calculated, you should be able to get the general idea of how to go about improving it; pay all your bills on time, reduce the amount of debt you owe, limit your requests for new credit and stay away from high risk credit.

Access the credit bureau operated Annual Credit Report to get a free copy of your credit report from each of the three credit reporting agencies. In the U.S.A. a federal law the FACT Act (Fair and Accurate Credit Transactions Act), entitles each legal U.S. resident to one free copy of their credit report from each credit reporting agency once every twelve months. (However, this report does not contain numerical credit scores.)

Check your personal information for errors like your name being wrong (e.g. maiden name listed but not married name), wrong address both present and past, right social security numbers and so on. In addition, you should review your financial info for things like loans showing a balance is due even though they have been paid off, credit cards or other accounts you previously cancelled, etc. The cleaner your reports are the fewer concerns there will be with your creditors, so make sure you report all errors and have any mistakes fixed right away.