How To: Achieve a Great Credit Score

So you're browsing around for a new car or looking to purchase a house, and you get your credit score pulled. You notice the loan officer's subtle attempt at hiding his or her disbelief at how low your credit score is. Your stomach drops, you get embarrassed, confused, then angry. Why is your credit score so low?? Well, the two things that account for the bulk of your credit score are:

• Payment History
• Owed Versus Available Credit

Having a long history of making payments on time is one of the biggest things taken into consideration when you are applying for a loan. So if you've had your Visa card open for quite a long time and you are making regular payments on it -- DON'T CLOSE THE ACCOUNT!  The longer history you've had with a credit card company - the better.

So you apply for a Wal*Mart card and you get accepted with a credit limit of $3500. Yay! Time to go spend ALL of it right? Wrong! Your credit score can be extremely lower when you use more than 50 percent of your available credit for each account. When you are close to maxing out your credit limit, thats an automatic red flag for lenders. You are labeled as a "high risk" credit card user, which in return makes you more likely to make late payments.

The three other factors that account for your credit score are

• Length of Credit History
• New Credit
• Type of Credit You Use

Generally speaking, a credit report that contains a list of accounts that have been open for at least ten plus years can help your credit score. Once again, if you've had an account open for a long time, don't close it even if it has a zero balance.

If you open several new credit accounts within a short period of time, your credit score will take a divebomb. Multiple credit inquiries that appear on your credit report will also lower your score. However, if your credit report is pulled by you, an employer or a lender who is "pre-approving" you, have little or no impact. These types of credit pulls are referred to as "soft credit inquiries." Also, a good little secret to know, is you have a 30 day window if you are shopping for a car or mortgage to have your credit pulled as much as you want--it only counts as one inquiry! So go ahead and "shop" for lenders, just remember it's a 30 day window.

Your mix of credit cards, retail accounts, finance company loans, and mortgage loans is also considered.

Don't feel TOO bad if your credit score isn't 800 though, only about 13% of folks credit scores are to that point. To sum it all up, having a long history of timely payments, using the right mix of credits, and not maxing out your available credit are keys to having a great credit score.