How to Raise a Good Credit Score...What Matters Most?

A credit score is a numerical expression based on a statistical analysis of a person's credit files, to represent the creditworthiness of that person, which is the perceived likelihood that the person will pay debts in a timely manner. A credit score is primarily based on credit report information, typically from one of the three major credit bureaus, Experian, TransUnion and Equifax.

Americans are entitled to one free credit report within a 12-month period from each of the three agencies. The three credit bureaus run Annualcreditreport.com, where users can get their free credit report, normally without credit scores. Credit scores are available as an add-on feature of the report for a fee.

One of the most important elements in determining your credit creditworthiness is your track record in borrowing money and paying it back on time. But, of course, there is also the matter of how much you currently owe compared to how much you currently earn. And something you may not have thought of: your current borrowing potential. You might have five Visa or MasterCards with absolutely nothing on them, but if they each offer credit lines of $15,000, the credit bureaus will see that as $45,000 of potential debt and lower your score as a result.

With so many millions of people to track, credit reporting companies have developed numerous credit scoring systems designed to neatly summarize your credithworthiness. Your income and current indebtness are considered. But so, too, are factors like these:

1. How long you’ve held your current job. The longer, the less likelihood that you will be fired.

2. Wether you own your home and are thus less likely to skip town than a renter.

3. If you rent, the length of time you’ve lived at the same address. This indicates stability and the ability to handle rental payments.

4. Whether you’ve recently applied for credit from someone else or suddenly maxed out your credit cards.

5. Wether you carry balances or pay everything off each month. Lenders tend to prefer people who carry a balance since they make more money on interest payments.

6. The “steadiness” of your occupation. Teachers score higher than farm workers, for example, since farm work can be seasonal. Shop owners and proprietors do not score very well because they go bankcrupt.

7. Too few credit cards hurt your credit score. That’s because a thin credit profile doesn’t provide as much evidence to lenders that you’re capable of paying back your debts on time as the more extensive track record of someone who is responsibly managing several cards and loans. To boost your score, consider opening another credit-card account or two; an installment loan, like a car loan, also looks good to scores. But don’t apply for more than, say three cards in a short period. Every time you request a new card, the issuer checks your credit report, and the inquiry reduces your credit score by several points. Each individual inquiry is not a big deal, but the cumulative effect of several can be damaging.

8. One of the biggest factors in determining your score is the amount you’ve borrowed relative to your credit limit. Ideally, your balance shouldn’t exceed 30% of the maximum you can charge. But even if you routinely pay your bill in full, it can sometimes look to creditors as if you’re overstepping that threshold. That’s because your score reflects what you owe when your card issuer ends its report to the credit bureaus, and timing is everything: If the report is sent in the small window after you’ve made a large purchase, but before your payment is received, you’re out of luck.

9. You’re always on time with bills, but one month a family emergency messes up your routine. Your score will drop if your payments is 30 days or more past due, no matter how small the amount or how perfect your record had been until then. Having other credit lines on which you always make timely payments will mitigate the impact of a missed payment. Yet another reason to carry more than one piece of plastic.

Keep in mind that not that you’ll be denied credit if you have a less-than-perfect score. There is no perfect score. As you may have gleaned from TV ads, nearly any one can qualify for some kind of credit. But the best scores get the best interest rates, because they represent the lowest risk.