Your credit score can be used to help determine everything from the interest rate for your home to the amount you’ll pay for auto insurance. The scores may feel arbitrary at times, but they’re actually carefully formulated based on a range of information. In order to send your score higher, you first need to understand how it’s determined.

Factors Affecting your Score

Creditors look at your total amount of debt in relation to your income level. They also consider the types of accounts you have, how many late payments or collections appear, and how old the different accounts are.

What is a Good Score

The credit score numbers range from 300 to 850. As the score rises, the likelihood that you can receive loan offers increases. If you have poor credit, you may be advised to work on repairing it before applying for most mortgage or personal loans. Here is the general breakdown on FICO credit score levels:

  • 17 percent of consumers have a very poor credit score between 300 and 579
  • 20 percent of all people are rated somewhere between 580 and 669
  • Another 22 percent of consumers have good credit ranging between 670 and 739
  • Very good credit is defined as a score ranging between 740 and 799, and roughly 18 percent of consumers meet this criteria
  • The highest level is 800 to 850, and 20 percent of consumers have this type of exceptional score

Determining the Score

Credit reporting agencies use a formula to determine what your score will be. It looks at both positive and negative information. The biggest single factor considered is your payment history, so late payments can have a profound impact on your rating. The breakdown is as follows:

  • Payment history is worth 35 percent of your score
  • Amounts owed is worth 30 percent of your score
  • Length of history makes up 15 percent of the final number
  • New credit and the mixture of credit are each worth 10 percent of the final score

How to Improve the Score

The best way to improve your credit score is to take control of your debt usage. Switch over to a cash lifestyle and resist the urge to charge things that you cannot afford to pay cash for. The optimal level on credit card balances is 30 percent of your credit line. As you get cards paid off, go ahead and leave the accounts open to help boost your mixture of credit, length of history, and to show that you have good self-control over your charging habits. Continue paying your bills on time, and try to pay a little extra so that you can bring the balances down faster.

The credit score can have a bearing on many aspects of your life, so it’s wise to take control of yours. As you boost the number, you’ll have access to more attractive financing options. That can help you take better control of your financial future.