Improving your credit score can save you thousands of dollars.

Your credit score is the first thing lenders look at when you apply for a loan or a credit card. Lenders get a snapshot of your credit history through various scoring models including the most commonly used Fair Isaac (FICO) score. They use this score to determine your overall creditworthiness. Information about FICO scoring is relatively new to consumers, and for many years was only available to lenders and credit card companies. Now consumers have access to their personal credit information and are learning just how lenders make their credit decisions based on an individual's credit score. Once you know how a credit score is determined, you gain the control you need to get the best deals on interest rates and potentially save thousands of dollars over the life of a loan.

FICO score is determined by a variety of factors such as how long you've had credit and whether you've made your payments promptly and as agreed. Another factor is credit capacity – the amount and availability of your revolving credit. Revolving credit is repaid in minimum monthly payments with credit available while installment loans are repaid in fixed monthly payments with no credit available.

• Key factors affecting your FICO credit score:
• Payment history – Have you paid creditors on time and as agreed?
• Credit capacity – How much of your revolving credit is available?
• Length of credit – Have you built up and managed your credit accounts carefully?
• Total debt – How much debt have you accumulated in the last 12-18 months?
• Type of credit – Do you carry a good mix of revolving credit accounts and installment loans?
  

A Higher Credit Score is Your Tool to Getting Better Rates.

Understanding how your credit score works for you when applying for a loan is the first step in gaining control over your finances. In the past, consumers did not have access to information about how their credit history was reported and may not have considered the full impact and importance of properly handling credit accounts. Financial Partners gives you the tools to better monitor and manage your credit saving you more money through better interest rates and lower fees.

In our previous section, we identified the primary factors used in determining your credit score, such as types of credit accounts, payment history and the amount available on revolving accounts. Many borrowers don't realize that a few late or missed payments will have a huge impact on the interest rates offered by a lender.

The most common mistakes in handling credit that have a negative impact on your FICO credit score include:

• Missing or making late payments
• Maxing out your credit cards
• Closing credit accounts
• Excessively shopping for credit (Inquiries)
• Opening new accounts in a short period of time
• Having more revolving credit accounts than installment loans
• Borrowing from finance companies and short-term lenders

Building a solid credit history and score will take time, but it's certainly a good time to get started now that the information is readily available.

Need to Get Your Credit Score Back on Track?

If your FICO (Fair Isaac) credit score has been derailed by unexpected emergencies or situations beyond your control, it's still possible to raise your credit score and take advantage of competitive interest rates. In earlier articles we identified how a credit score is determined and the reasons why a credit score may be lower than you'd like it to be. Managing your credit accounts is the start to getting you on track. It won't happen overnight, but over a period of months, you can take the steps necessary to gradually improve your credit score. What does it take to raise a credit score and have lenders willing to offer you better terms and rates on your loan?

• Make payments on time
• Reduce the balance on credit card accounts
• Move revolving credit balances with a minimum monthly payment to installment loans with a fixed monthly payment.
• Don't apply for new credit accounts
• Don't close credit card or revolving accounts (this will decrease your capacity).