Most people are constantly striving to improve their self. They become a better public speaker to earn a promotion or go to the gym to loose a few pounds. And increasing your credit score is not different. By bettering yourself in this way you are potentially able to save thousands of dollars on purchases and borrowings.

Your credit score can make or break you when you apply for a loan. That is why it’s important that you take steps to increase it or, at least, to maintain a good level. Below are some tips which should help you to increase credit score and be on your way to great, money-saving purchases:

Make payments in a timely manner

Lenders love punctual payers. So it’s not unusual to get high scores if you have been paying your bills on time. The easiest way to increase credit scores is to pay your bills regularly and always on time. Conversely, late payments, collections, and bankruptcies have the greatest negative effect on your credit rating.

Check credit reports regularly

The information in your credit report actually forms the basis of your credit scores. Any inaccuracies should be rectified as soon as possible so as not to reflect negatively in your records. That’s why it is adviseable that you check your credit report on a regular basis, preferably at least once a year.

Reduce debts

The amount of debt you have and the amount of credit available play an important role in determining your credit score. High debts with low credit amounts usually means a low credit rating. On the other hand, if you have lots of credit available and minimum debt, then your scores should be high.

Following from this logic, if you reduce your debts, then you can increase credit scores. Keep your credit card debts at minimum and avoid any unnecessary charges.

Take A Long Term Approach

At the risk of sounding clichéd, Rome wasn’t built in a day. To increase credit scores, time is an essential element. Having a long credit history will positively impact your score while a short history could class you as a risky borrower.

Some people try to get around around this obstacle by opening several new accounts at once, in an effort to make it appear that they have a lot of credit. However, this kind of scheme could backfire since multiple new accounts opened in a short period of time can actually reduce your score. So in order for you to increase credit score, it is better to be patient and to bide your time.

Your credit score tells lenders how likely you are to pay your bills and borrowings based on your current circumstances and past history. As such, the credit score becomes their basis for making a decision on whether or not to approve your credit application. That is why it is extremely important that you keep tabs of your credit score. The better your score, the higher the likelihood that you will be approved for a loan and the better interest rates the lender is likely to offer. Whereas, the lower your score, the less change you will have of being approved for a loan.

How Your Position On A Credit Score Scale Is Calculated

Positions on credit score scales are calculated through a complex mathematical algorithm which uses factors such as repayment history, credit history, credit availability, existing or current debts, bankruptcies if any, etc.

Who Evaluates Credit Worthiness?

The top three credit bureaus that report compile credit score scales for banks and other lending institutions are Experian, Equifax, and Transunion. All three are private companies that assign value to your credit rating based on information found in your credit report. The factors used to calculate the scores are basically the same. However, since these companies use their own unique system of credit score scales, your credit scores and reports may vary from company to company.

Moreover, some lenders do not rely solely on the information provided by these three credit bureaus. They may have their own system of analyzing future credit performance that affect whether or not they are going to approve your credit application with them.

The Earliest Credit Score Scale

The most common credit score scale system used (and the first ever) by credit reporting agencies is the FICO score, developed by Fair Isaac Corp. The FICO score has a  scale of 300-850 with 720 and above considered as "good scores". Good scores usually mean, credit worthy. However, this does not mean that those who are scoring below 720 have no chance of getting credit, since lenders may still approve credit even if the applicants have low  scores.

The Importance of Credit Score Scales

Credit score scales make it easier for lenders to make fast decisions concerning loan approvals. Since the scores represent the most precise information they need, they can make accurate decisions based on these scores much faster.

Faster loan approval processes benefit the consumer and because lenders need to spend less time mulling over a single application, they can accept more applications and approve more people.