A credit score is a numerical expression based on a statistical analysis of a person’s credit files that shows the creditworthiness of that person. So it is important to have a good credit score so you can have lower rate, smaller monthly payment, and speed up credit approval. So it is very essensial to increase your credit score. To know how to increase your score, you need to know how it is calculated. Many lenders use third party credit scoring system such as FICO to evaluate the credit worthiness of a borrower.

If you are using FICO (the most widely used in the mortgage industry). You should understand how FICO calculate your score. They will look into:

• Payment history (35%). The better you have good payment history, the higher your score. So tips #1: Do pay your bills in time.
• Amounts owed (30%). The more amounts you owe, the lower your score. Tips#2: Keep your credit card balance low, and pay your debt.
• Length of credit history (15%). Longer credit history will have higher score. Tips#3: Don't open a lot of new accounts.
• New credit (10%). The more you have new credit, the lower your score. Tips#4: Don't open accounts that you don't need.
• Type of credit used (10%). If you have a mix of credit types like credit cards, mortgage, or auto loan, you will have a slight higher score. Tips#5: If you need it you can apply for other credit types. Don't apply just to raise your score. Remember it only counts for 10% having mix of credit types.

Another thing you have to know is FICO allows “rate shopping” / applying to many lenders for the same loan to obtain a better rate of interest and other terms like repayment schedule. If you use rate shopping, multiple lenders will request your credit report, even though you’re only looking for one loan. FICO® scores distinguish between a search for a single loan and a search for many new credit lines. You can avoid lowering your FICO® score by doing your rate shopping within a short period of time, such as 14 days.