How to Improve Your Credit Score

With the recent troubles facing many borrowers and lenders, now is as good a time as any to maximize your personal credit score. In the past few years many lenders have been to eager to fund mortgages for people with spotty credit histories. The results turned out to be disastrous. More than 20 of these sub-prime lenders have either gone under, or are well on their way. Sadly enough, many new home owners are also facing difficult times too. With foreclosures becoming all to common, and sub-prime lenders dropping like flies, those of us on the market for a loan are sure to face additional scrutiny. You credit score will need to improve as lenders begin to tighten their belts.

Whether you apply for a home loan, car loan or personal loan for that matter, a potential lender is first going to analyze your credit score. They use your credit score to determine how much risk they are taking when loaning you money. The higher your FICO score, the more likely you are to repay the loan. Until the recent decline in home values, lenders were quick to approve a mortgage for just about anyone, no matter what their credit score was. Well that was then! Now it's more like credit crunch time! So as we forge ahead, a good credit report will be very important. There are several things you can do to better your credit report. Before we look at how to improve your credit score, let's take a look at where a credit score is derived from.

There are 5 main areas that determine an individuals credit score.

1) Payment History.... Your past payment history says a lot about you. A steady on time payment history helps a potential lender feel more comfortable about your ability to honor the terms of a loan agreement.

2) Credit Balances.... When you apply for a loan, a lender will take a good look at what you currently owe on other loans. They want to be sure that you can take on the additional commitment of more debt.

3) Length of Credit History.... Another factor in determining an individuals credit worthiness is how long they have had credit. A good credit report is built over time. The longer you maintain your credit accounts, the better it reflects on you.