Calculating Your Credit Score

Years ago, the way banks calculated your credit score was largely a mystery to the everyday person. Then thanks to the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, that information along with many other financial practices changed dramatically, essentially requiring more accountability and transparency in the banking industry.

Now, we have many consumer companies that will gladly show you your credit score. And smart consumers are checking their reports every month! (I like CreditKarma.)

It is also recommended that you look at your credit report at least once a year, and clean up any issues that you might uncover. Best place to do that? AnnualCreditReport.com

Your score is based on these factors:

• Payment history: 35%

• Amounts owed: 30%

• Length of credit history: 15%

• Credit mix: 10%

• New credit: 10%

What are the most important things to do to improve your credit score. Let's review.

**1. Pay All Your Bills on Time**

One of the most important factors impacting your credit score is your payment history. Make it a priority to pay all your bills promptly, including utility bills, credit cards, student loans, and most importantly, your mortgage. Consistent on-time payments demonstrate responsibility and reliability, which positively influence your credit profile.

**2. Be Cautious When Opening New Credit Accounts**

While having multiple credit accounts can be beneficial, only take on new credit when necessary. Avoid opening credit cards that you cannot pay off within a reasonable timeframe. Applying for numerous new credit lines in a short period can raise flags for lenders and potentially lower your score.

**3. Regularly Review Your Credit Report**

It's essential to stay informed about your credit status. Obtain free copies of your credit reports from major credit bureaus and review them carefully. Look for any inaccuracies or fraudulent activities. If you find discrepancies, dispute them promptly to ensure your report accurately reflects your credit history.

**4. Manage Your Credit Card Balances Wisely**

Keeping your credit card balances low relative to your credit limits (preferably below 30%) can boost your score. Focus on paying down existing balances, but unless a card has high annual fees, avoid closing accounts entirely, as this can reduce your overall available credit and potentially impact your score negatively.

**5. Monitor Your Credit Score Regularly**

Stay proactive by keeping an eye on your credit score. Various free tools and services allow you to track your credit health over time. Monitoring helps you understand how your financial behaviors impact your score and alerts you to any unusual activity.

**6. Be a Smart Consumer**

Throughout your financial life, practice responsible habits. Whether you're applying for a loan, renting an apartment, or even job hunting, a good credit score signals to lenders and landlords that you're trustworthy. Paying your bills on time, maintaining low balances, and managing credit wisely will pay dividends in all areas of your life.

**Conclusion**

Improving your credit score is a gradual process that requires discipline and consistency. By following these tips, you'll position yourself better for favorable loan terms, rental agreements, and even career opportunities. Be a savvy consumer. You'll be glad you paid attention to your credit score in your