Everyone knows that having a great credit score is a good thing. Yet, there is a lot of confusion about what a credit score actually means.

Your Credit Score

Any time you apply for a loan, the lender checks your credit score with a credit reporting agency. That agency provides a credit score, ranging from 300 (lowest) to 850 (highest). The higher your credit score, the more likely you are to secure a loan.

Many people believe a credit score suggests what kind of individual they are. That's simply not true. The number everyone talks about actually measures the level of risk you may be to the lender. Individuals with lower scores are believed to have a high risk of defaulting on their loan. Those with higher scores have a lower risk.

What Credit Scores Can Do to Your Finances

Your credit score can affect many things in your daily life. Once upon a time they only impacted a person's ability to get a loan. Now, however, a low score may keep you from getting an apartment lease, car insurance, or even a job.

While a credit score still determines your chances of getting a loan, it may also determine what kind of interest rate a lender will give you. Just because your score is high enough to qualify for a loan doesn't mean you're going to get a good deal.

Improving Your Credit Score

If you struggle with a low credit score, don't think there's no hope. While there are no quick and easy methods of building a better score, a little care and patience will have a powerful effect.

Here are some tips to improve your credit score:

  • Pay On Time - Simply paying your bills when they are due will set you on the right path. Even a couple of late payments has a negative influence on your credit.

  • Don't Max Out Your Limit - Just because you have a high limit on a credit card doesn't mean you should use it. Maxing out your credit makes it look like you can't handle your money wisely.

  • Don't Cancel Credit Cards - Some credit managers will suggest canceling credit cards. However, this is only for those people who absolutely can not control their use of their credit cards. Credit agencies prefer to see lengthy histories of credit use. It gives them a better picture of your credit habits. Keep your credit card accounts open, but use them wisely.

  • Don't Request Additional Credit - Having more credit than you need is also an indication of risk. Don't apply for every credit offer that comes through the mail. If you are struggling with credit problems now, having more credit will do nothing to help.

Using this handful of credit tips will go a long way in improving your credit score. When your score is where you want it to be, you will walk into any loan office with confidence.