It's Payday! On the Radio: Boost Your Credit Score

You ever wonder,"how do they figure out my credit score?" We talked about ways to boost your credit score on today's episode of It's Payday!

In today’s economy credit is currency. People peak at your credit score for nearly everything including jobs, apartments, banks and even rental cars. If your score is below 620 you are either paying expensive premiums or you’re denied. A score of 700 plus is the gateway to affordable rates.

Here’s how your score is determined:

35 percent Your Payment History. Do you regularly pay your bills or fines on time to any creditor that submits your information to the credit bureau? Even unpaid library fines, medical bills or parking tickets may appear here.

30 percent Outstanding Debts. This is based on the amounts you owe each of your creditors, and how that compares with the total credit available to you or the total loan amount you took out. If you’re maxing out your credit cards, your score may suffer.

15 percent Credit History. This portion is based on the length of your credit history, both how long you’ve had each account and how long it’s been since you had any activity on those accounts. The fewer and older the accounts, the better (assuming you’ve paid on time).

10 percent Number of Accounts. This segment is based on how many accounts you’ve recently opened compared with the total number of your accounts, as well as the number of recent inquiries on your report made by lenders to whom you’ve applied for credit. Your score can drop if it looks as if you’re seeking several new sources of credit — a sign that you may be in financial trouble. (If a lender initiates an inquiry about your credit report without your knowledge, though, it should not affect your score.) Shopping around for an auto loan or mortgage shouldn’t hurt, if you keep your search to six weeks or less. But every inquiry you trigger when you apply for a credit card can affect your score, says Craig Watts, a spokesman for Fair Isaac. So be selective.

10 percent Type of Credit Used. Having installment debt — like a mortgage, in which you pay a fixed amount each month — demonstrates that you can manage a large loan. But how you handle revolving debt, like credit cards, tends to carry more weight since it’s seen as more predictive of future behavior. (You can pay off the balance each month or just the minimum, for example, charge to the limit of your cards or rarely use them.)