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By Rachel Haig | 04-08-2010 09:02 AM

5 Tips to Improve Your Credit Score

Knowing how your credit score is calculated and what you can do to improve it are the first steps to improve your creditworthiness.

Rachel Haig: Hi, I'm Rachel Haig for Morningstar.com. Credit scores have gotten a lot of attention since the beginning of the credit crisis. So what score is good enough to be considered creditworthy?

Your credit score, also known as your FICO score, is a large determinant of what types of credit you have access to, and at what rates. According to CNNMoney, someone with a score of 580 will likely pay three more percentage points on a mortgage than someone with a score of 720. And with currently strict standards, a score in the 500s may make it difficult to qualify at all.

So how exactly is your score calculated, and what can you do to improve it? Your score can range from 300 to 850, based on five factors outlines by FICO.

First is payment history. This part of your score is the largest component and is based on the number of payments past due, how far past due they were, and how recently late payments occurred.

Second is amounts owed. This section looks at how much you owe, the number of accounts with balances, and how much of your available credit you are using. Also known as your credit utilization ratio or debt to credit ratio.

Third is the length of your credit history. As you would expect, this takes into account how long you have had credit. The time since accounts were opened and since they were last used are both factors.

Fourth is new credit. This looks at the proportion of accounts that were recently opened, and the number and recency of new credit inquiries. Inquiries occur whenever you apply for a credit card, car loan, or other line of credit, and the originator requests your credit score. Only inquiries that you initiate by applying for new credit count against your score. So checking your own score will not count against you.

Fifth is types of credit. This looks at the variety of your credit lines. Having a healthy mix of different types of credit, such as credit cards, a car loan, and a mortgage improves your score, as long as you stay current on all of your accounts.

Keep in mind your credit score does not factor in your employment status, income, age, gender, or any other non-credit-related information.

So what are some things you can do to increase your score?

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