What Has the Greatest Impact on Your Credit Score?

As most consumers know, your credit score is what lenders use to determine if you are creditworthy. If you have a high credit score, you'll reap the benefits of attractive offers from banks, mortgage companies, retailers, and credit card companies. If your credit score is low, however, you might end up paying thousands of dollars more in interest on new accounts, and your monthly payments for a car, home, or credit card may be much higher than if you improved your score.

What your credit score is comprised of

Your credit score (actually you have three; one from each of the nation's credit bureaus) is computed based on five areas of your credit reports: your payment history, how much you owe on your existing accounts, how long you've had credit, if you've opened new accounts recently, and the types of accounts you have.

How to improve your credit score

The first two components - your payment history and the balances you owe - make up 65 percent of your overall credit score, so you should start with these areas to improve your credit rating. Just remember that major changes to your score don't happen overnight, but making a commitment to consistently work at improving your credit history will go a long way in achieving this result.

Making your credit card payments on time

If you pay your monthly bills through the mail, you need to send in your payments so your creditors receive them at least ten days before the payment due date. This allows time for lenders to process your payments and post them to your accounts before the deadline. Mailing payments late is the primary reason for decreases in consumer's credit scores; so get your payments in on time and watch your credit rating go up.

Paying down your balances

For many people paying down the balances on their credit cards may seem like a pipedream. But you can make headway by following a couple simple guidelines:

• You'll make the greatest impact on your credit score by keeping your account balances at less than 50 percent of your credit limit. So instead of trying to pay down all of your balances to zero, start by paying them down to a level that's half of your credit line.


• Begin a pay down strategy to lower your balances. Make the minimum payment on all of your credits cards except one. On that card, pay as much above the minimum due as possible until the balance is paid down. Once the balance is paid off, take the money you were paying toward that card and apply it to another, plus the minimum payment you've been making for the second card. You can either start with the credit card that has the lowest balance, which will pay off your cards faster, or with the card with the highest interest rate; this will save you more money in interest over the long term. This type of strategy will have a snowball effect in paying down your debt and improving your credit score significantly.