Your credit score is a tiny but vital piece of information that greatly impacts your life. Creditors can take one glance at that three-digit-number and know whether to grant or deny loan applications. These applications could be for a dream home, vehicle, boat, or to start a new business. Although there is no set formula for calculating a credit score, there are five areas creditors agree greatly affect it. Your history of payments, the amount of money that you owe, what type of credit you use, whether you have new credit, and the overall length of your credit history are the factors that can make of break your score. Now that you know how your credit score is computed, it’s time to slowly bring it up by monitoring your finances, your types of credit, and the actual contents of your credit report (which you can get for free from annualcreditreport.com).

The first thing you can do to improve your credit score is to always be on top of your finances. Make sure you are paying your bills on time and not spending too much money you don’t have. Having a lot of outstanding credit or many different types of loans will negatively effect your score. On the other hand, having one great large sum of money owed will also work against your credit score for example if you consolidate all your loans in search of a low monthly bill. This may be good for your wallet in the short term, but long term you’ll find it difficult to be issued new credit as your score will be low.

Keep the old and limit the new is the best advice for credit types. Old accounts you have are considered old credit. It may seem like a good idea to close them and add them to your more commonly used accounts but this will eliminate your credit history. Keep the old as long as you can, even if it’s a little inconvenient. Also, limit new credit. Don’t open tons of savings accounts, apply for a lot of shopping cards or credit cars, and don’t take out a lot of small loans. Less is more when it comes to the number of cards, bills, and accounts you have.

Your credit score is important and you don’t truly appreciate its value until you need it to get a loan application accepted. Start raising it now to ensure all your plans can happen on your time with low interest rates and good credit scores.

Personal loans for people with bad credit are available, but their very high interest rates can lead to more financial trouble than you are already in.  Work to build your score back up, and enjoy the benefits of having good credit.