Credit scores are a numerical assessment of a person's creditworthiness. The scores are produced by three major credit agencies: Experian, Equifax and TransUnion. All three work from a basic system known as FICO, but interpret this in a different way and use different data, meaning each individual can have three different credit scores.
Check Accuracy
Under the Fair Credit Reporting Act, consumers have the right to get a free copy of their credit reports from the three major agencies once a year. Consumers also have the right to discover their exact credit score with an agency at any time, but can be charged a reasonable fee for this; the Federal Trade Commission suggests this should be around $8. Reports and scores can be ordered through a central website, www.annualcreditreport.com. Consumers who find an error should contact both the credit agency and the relevant credit issuer (such as a bank or credit card issuer) to request a correction.
Pay Bills On Time
Payment history makes up around 35 percent of a credit score according to Fair Isaac Corporation, which developed the FICO system. This takes into account both missed payments and any resulting court action. The score takes into account the amounts involved, but puts less weighting on older incidents.
Avoid Too Many Applications
Recent application history contributes about 10 percent of the total score. This means it is important to think carefully before applying for credit and, if possible, to leave a gap after an unsuccessful application. Not doing so can create a cycle of failed applications worsening a score and making another failed application more likely.
Check Usage Ratios
Generally the higher the proportion of your total credit limit that you use, the lower your credit score. This factor makes up about 30 percent of the total score. One way to do this is to pay off as much of your more affordable existing loans or balances as possible -- for example paying down a credit card before applying for a mortgage. Another method is successfully applying for an increase on an existing credit limit, which inherently makes the balance become a smaller proportion.
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