Having a high credit score can significantly make a difference on how lenders approve your credit applications and how lenders give you their rates. What is the best way to improve your credit score? To better answer this question, we’ll be taking a look at how credit reports and scores are calculated.

Your credit score is totaled based on five major categories – your payment pattern, your payment history, your debts, the types of your credit, and new credits in your account. Now, let’s discuss each of these credit score categories.

• Do you pay all your bills promptly?
• Are you in the habit of delaying on your payments?
• Do you have past due bills in your account?

Nevertheless, although you usually try your best to pay on time, there may be instances when you are forced to delay on your payments. When this happens, make sure that you get in touch with your creditors right away. Remember, you can request from your creditors not to report your late payments as long as it doesn’t exceed thirty days. If you think you can’t pay off your debt within that 30 day limit, try to make an arrangement with your creditor.

Your Payment History
How long you’ve had credit also plays a role in your credit report. That is why it is very important to establish credit as early as possible. It adds up to your credibility as a borrower. This is also the reason why you should never close your account from your old credit cards even when you don’t use frequently use them. If your old credit cards come with high interest, use them occasionally to buy inexpensive items just to keep them from automatically closing out.

Your Debts
The debts you owe will determine whether you are a high risk borrower or not. If you are in the habit of maximizing your credit limit, then creditors will automatically regard you as high risk. Ideally, borrowers should never go beyond 30%-40% of their allowable credit.

Types of Your Credit
Whether you have credit card accounts, car loans or mortgage loans also affect your credit score. A mortgage loan can increase your credit standing because it is considered as debt that appreciates in value over time. Nonetheless, keep in mind that it will only boost your credit if you are able to keep up with your mortgage.

Your New Credit

How you manage your new credit is just as important. Remember that each time you submit a credit application, a new inquiry is made on your credit history. Too many inquiries can lower down your credit score. Refused credit applications can also be a red flag in your report. To avoid damaging your credit, send an application only if you really plan on obtaining it.

Melanie Mathis is a credit analyst and a writer for 8 years. She has been participating in the programs of NHBS, Inc such as their continuous effort in giving out Free Credit Repair and Building Ebook. NHBS also has a list of recommended bad credit credit cards. Copyright 2008.