Your credit score is calculated using a mix of data, including your payment history, how much credit you have and length of credit history.Here's the golden rule: Only charge what you can afford to pay every month in full.Keeping your balances low will help boost your credit score. Aim to keep your debt utilization — which is amount of available credit you actually use — as low as possible.There's no need to have a wallet full of credit cards, but having one or two that you use responsibly will help your score.

Key Points For Building Credit

You can check your credit report for free once a year from each of the three main credit reporting agencies, TransUnion, Equifax and Experian. But your score won't be included on these free reports — you'll usually have to pay to see it.If you do purchase your score, it usually comes with a list of risk factors, explained Rod Griffin, director of public education for Experian. This will give you a good starting point on what areas you need to improve."There are as many as 300 different risk factors in a credit score," he said.

1. Know your credit risks

Your payment history is the biggest factor in determining your credit score. Lenders don't want to give money to someone who has a history of missed payments.Paying a bill more than 30 days late can drag down your score. "One single missed payment can drop your score anywhere from 100 to 300 points," said McClary.If you went through a period of time where money was tight and you were late with some payments, it's time to right the ship. Curb your spending and start a track record of paying your bills on time.Here's the golden rule: Only charge what you can afford to pay every month in full.

2. Pay your bills on time, all the time

Keeping your balances low will help boost your credit score. Aim to keep your debt utilization — which is amount of available credit you actually use — as low as possible."You never want the balance to be more than 30% of the credit limit — that is, any one card or in total," said Griffin.If you are carrying a balance on any of your credit cards, create a plan to get them paid off as soon as possible.

3. Manage the debt you have

There's no need to have a wallet full of credit cards, but having one or two that you use responsibly will help your score."You should apply for credit when you need it and know how you are going to repay it," said Griffin.But if you don't have a credit card, he recommended opening an account and making a small purchase each month and paying it off. "Credit cards have a little more weight than installment loans because you decide how much to charge and pay," he explained.

4. Open a credit card if you don‘t have one

Good credit scores don't just happen overnight.For instance, the positive effects of opening and making on-time payments on a credit card could take a few months to show in on your score, according to Griffin.Correction: An earlier version of this story stated that paying a bill a few days late could hurt your credit score. A payment would usually need to be more than 30 days late before being reported to the credit bureaus.

5. Be patient

If your credit score is low, don't panic. Take these steps to improve it. 

Money

5 easy steps to improve your credit score

<ul>
<li>Spend less money than you earn</li>
<li>Always plan for the future: you should always look forward beyond the current month</li>
<li>Make your money make more money: invest, start a business or invest in your education.</li>
</ul>

The Golden Rules of Personal Finance

Money & Investments

How you manage, spend, and invest your money can have a profound impact on your life, yet very few schools teach these important skills. Learning financial savvy can take a while, but the basics are fairly simple and never change. Here's where to get started.

How to Start Managing Your Money, For Those Who Never Learned Growing Up

It is a three-digit number that lenders use to assess your creditworthiness and your ability to pay your bills on time.
<ul>
<li>The score ranges between 300 and 850.</li>
<li>The higher the score, the more creditworthy you are, and the more likely lenders will lend you money at a lower interest rate.</li>
<li>The FICO score is the most widely used, but there are also other systems.</li>
<li>Your history of payments determines your score as well as your credit utilisation.</li>
<li>Your credit report determines your credit score.</li>
</ul>

The credit score

Bill Fair and Earl Isaac developed credit scores in the 1950s to create a standard system to measure credit. They called it Fair, Isaac, and Company, known as FICO. Another credit score is the Vantage Score.
Both FICO and Vantage Score base their scores on analysing each credit report as collected by the three major credit reporting agencies: Experian, Equifax, and TransUnion. But FICO and VantageScore use different methods for a credit score, taking various data into account.

The history of the credit scores

Mortgage lenders usually use FICO scores to determine one&#39;s ability to pay them back. Since the three credit bureau scores are different, some banks look at all of them to get an average, or tri-merge, score.
Two common factors in determining your creditworthiness are timely payments and credit utilization. Other factors like credit history, types of accounts, and recent hard inquiries are used to varying degrees. It means that the score you see may be different to the score a lender use.

The reason for different scores

<ul>
<li>Late or missed payments will drive down your credit score and remain on your record for seven years.</li>
<li>Credit utilization is the percentage of available credit you&#39;re currently using. If you use more than 30% of your available credit, scoring models will consider you unreliable.</li>
<li>Credit history considers your long-standing credit accounts. A long account history in good standing increases your score.</li>
<li>Too many recently-opened credit accounts can be seen as risk.</li>
<li>Having different credit accounts increases your credit score.</li>
</ul>

Factors that make up your credit score

A credit report documents your credit history, your current status of accounts and payments, and when companies have pulled your report when you&#39;ve applied for credit. A credit report is the source of your credit score.
It is vital to keep an eye on your reports and notice anything that could cause long-term damage to your credit. You can request a free credit report per bureau every year.

Credit scores are different from credit reports

Common factors that could damage your credit score are negative items, such as bankruptcies, foreclosures, late payments, high credit utilization, and credit inquiries from potential lenders.
Some people employ the services of credit repair companies to dispute incorrect or fraudulent credit items on your behalf, but the outcome is not guaranteed.

Credit repair companies

A guide to the differences between FICO and VantageScore credit scores, what goes into them, and how to improve them.

What Is a Credit Score?

Many people do not effectively manage their debt but juggle multiple debts with different terms and interest rates.
The most effective way to pay off debt is to focus on the loans with the highest interest rates first. However, research shows that consumers who manage multiple debts prefer to reduce the total number of debts rather than reducing the total of their associated costs, even if they will pay more in the long run.

How we intuitively manage debt

<ul>
<li>The Prospect Theory suggests individuals are more sensitive to a loss than a gain of an equal amount. The urge to get in the black is so strong that people are motivated to pay off small debs without considering their interest rates.</li>
<li>The Goal-Gradient Theory supposes that consumers are more willing to make an effort towards small debt just to finish paying them off.</li>
<li>People do not take into account how interest compounds over time.</li>
</ul>

Psychological processes behind debt account aversion

<ul>
<li>We can set up automatic payments to the debt with the highest interest without regarding how much is owed on it.</li>
<li>We can consolidate multiple debts into a single loan. If you have five different loans with different interest rates, your loan servicer can consolidate each debt into one payment.</li>
</ul>

How we can reduce our debt

Why Don't People Manage Debt Better?

<ol><li>Create a Financial Calendar: prevent yourself from forgetting quarterly tax payments and to get credit reports.</li><li>Check Your Interest Rate: Pay off loans, open saving accounts and negotiate credit debts based on interest rates.</li><li>Track Your Net Worth: The difference between your assets and debt — it tells you your financial standing.&nbsp;</li></ol>

3 Financial Basics

<ul><li>Consider an All-Cash Diet,&nbsp;as limiting yourself to physical currency combats overspending.</li><li>Set aside 1 minute a day to check on your financial transactions,&nbsp;to identify problems, track goal progress and set your spending tone.</li><li>Allocate at least 20% of your income to financial priorities like emergency funds, debts and retirement fund.</li><li>Budget about 30% of your income for nonbasic spendings, like entertainment. Abiding by the 30% rule, you can save and splurge at the same time.</li></ul>

Budgeting Like a Pro

<ul><li>Draft a Financial Vision Board, it motivates and helps you to stay on track with your financial goals.</li><li>Set specific financial goals stating the reason, the way, numbers and dates.</li><li>Adopt a spending mantra, a phrase that serves as a rule of thumb for how you spend.</li><li>Love yourself. Taking control of your finances is part of that.</li><li>Make bite-size money goals. Make the bigger ones but also small step goals to get there.</li><li>Don’t be a financial fatalist, and switch to more positive mantras.</li><li>Get your finances and body in shape. The discipline associated with regular exercising translates to managing your money well.</li><li>Appreciate what you have now, instead of being a consumerist.</li><li>Get a Money Buddy. Studies indicate people pick up good habits from friends with similar traits.</li></ul>

How to Get Money Motivated

<ul><li>When negotiating a salary, get the company to name figures first,&nbsp;otherwise you can’t know if you’re lowballing or highballing.&nbsp;</li><li>Try to negotiate more than just your salary. Work hours, official title, parental leave, vacation time, and which projects you’ll work on could all be negotiable.</li><li>Assume you qualify for unemployment and learn its rules. Many do qualify but are unaware.</li><li>When negotiating salary emphasize the value you bring to the company as employers don’t care about your dreams but do about keeping a good employee.&nbsp;</li></ul>

How to Amp Up Your Earning Potential

<ul><li>Paying off the little debts can give you confidence to tackle larger ones. It’s recommended to focus on debts with the higher interest rates, but sometimes a moral boost is worth it.</li><li>Don’t cosign loans. If the borrower misses a payment, your credit score plunges and the lender can charge you.</li><li>Every student should fill out the FAFSA;&nbsp;many miss out grants that don’t need to be paid back because they are not filling out the forms.</li><li>Choose federal student loans over private loans, they have flexible payment terms and often better interest rates.</li><li>Investigate repayment options for federal student loan payments.&nbsp;</li><li>Opt for mortgage payments below 28% of your monthly income. That’s a general rule of thumb on how much you can afford.</li></ul>

How to Keep Debt at Bay

<ul><li>Evaluate purchases by cost per use. Higher cost products may last longer, but go unconsidered because of their initial price.</li><li>Spend on experiences, not things, as they give you more happiness for your investment.</li><li>Shop solo to avoid buying unnecessary things due to social influence.</li><li>Spend on the real you, not the person you want to be.</li><li>Ditch the overdraft protection as it often trips people into overspending.</li></ul>

How to Shop Smart

<ul><li>Start Saving ASAP. Money you put in your retirement fund now will have more time to grow through compound growth.</li><li>Avoid cashing out your retirement account early as it prevents your money from being invested and leads to penalties and tax bills.</li><li>Contribute money so your employer can match it if you have a 401(k)</li><li>Invest your raise in your retirement savings. Up your automatic transfer to savings, and increase your retirement contributions.&nbsp;</li></ul>

How to Save Right for Retirement

<ul><li>Reviewing your credit report and your credit score regularly can save you money</li><li>Keep your credit use below 30% of your total available credit,&nbsp;as it can ding your credit score. You calculate it by dividing the total amount on all of your credit cards by your total available credit.</li><li>If you have bad credit, get a secured credit card. It helps build credit like a regular card but won’t let you overspend. And you don’t need good credit to get one.</li></ul>

How To Best Build And Track Your Credit

<ul><li>Get more life insurance on top of your company’s policy, as it is often far too little.</li><li>Get renters insurance and be covered from robberies, vandalism, natural disasters, and even things like the medical bills of people who get hurt at your place, damages you cause at someone else’s home, rent if you have to stay somewhere else because of damage done to your place.</li></ul>

How to Get Properly Insured

<ul><li>Make savings part of your monthly budget.&nbsp;</li><li>Keep your savings out of your checking account,&nbsp;as it may prevent you from spending it.</li><li>Open a savings account at a different bank than where you have your checking account so it won’t be too easy transferring between them.</li><li>Direct deposit to your savings account so only the money you want to spend goes to your checking account and your savings are preserved as they stay out of your mind.</li><li>Consider switching to a credit union;&nbsp;they could be the place to go for better customer service, kinder loans, and better interest rates on your savings accounts.</li><li>Only use your emergency savings account if you’ve lost your job, have a medical emergency, a car break, emergency home expenses (like a leaky roof), or you need to travel to a funeral.</li><li>Think about investing if you have more than six months’ savings in your emergency account (nine months if you’re self-employed), and you have enough socked away for your short-term financial goals.</li></ul>

How to Prepare for Rainy (Financial) Days

<ul><li>Pay attention to the fees you pay in your funds, also called expense ratios, as they can eat into your returns. It’s generally recommended to stick with low-cost index funds.</li><li>Rebalance your portfolio once a year. You need to take a look at your brokerage account every once in a while, to make sure that your investment allocations still match your greater investing goals.</li></ul>

How to Approach Investing

We've certainly amassed a wealth of knowledge over the years covering the money beat-be it the dozens of "I got out of debt" success stories we've featured to the scores of psychological studies we've covered linking better financial decision-making to behavior change.

creditscore

Key Points For Building Credit

5 easy steps to improve your credit score

The Golden Rules of Personal Finance

How to Start Managing Your Money, For Those Who Never Learned Growing Up