Your credit score is the key indicator used by lenders to predict your credit risk. The higher your score, the more creditworthy you appear and the more money they are willing to lend you, at a lower interest rate. So the importance of having a high credit score is significant. In order to achieve a high credit score, you must learn how to give lenders exactly what they are looking for in your credit report and follow the golden rules to proving your creditworthiness.

Fico credit scores are the most widely used credit scores. You have three scores, one from each of the three primary credit reporting agencies, Experian, TransUnion and Equifax. Your credit score is based on information each bureau keeps on file about you.

The credit bureaus base your score on 5 key components of credit. These are the Golden Rules of Credit Worthiness the lenders will base their decision upon.

Your payment history is a primary factor in determining your credit score. It comprises 35% of your overall score. Lenders look at what specific types of accounts you have held in the past such as credit cards, installments loans, retail accounts, mortgages, etc. They look for adverse payment reports such as the number of past due payments you’ve made, how often they were past due and how long past due they were. The severity of payment delinquency directly affects your credit score.

The amount you owe accounts for 30% of your credit score. Lenders look at the number of accounts with balances you hold, and the amount you owe. They look at what proportion of your credit line is used in comparison to the original loan amount, and will deduct points from your score if you owe a large percentage of your overall credit limit.

The length of your credit history accounts for 15% of your overall credit score. They evaluate the specific type of accounts you open and how long since the last activity took place.

The fourth element lenders asses is; new lines of credit. The number of recently opened accounts and inquiries for new lines of credit accounts for 10% of your credit score. They rate you on the account type and time since inquiries were made. Lenders also look for re-establishment of new credit history after past payment problems, so it is wise to rebuild a solid payment history if you have had a past due payment history.

The final 10% of your credit score is based upon the types of credit you’ve used. They check the number and prevalence of your accounts and what specific types of credit you have. They take note of which credit card accounts, installment loans, mortgages, and consumer finance accounts you have, and rate you accordingly.

If your Fico credit score is between 620 and 659, you are considered to be below average, and a fairly high risk. If your score is between 660 and 699, you are within the national average. If you’re score is 700 or higher, congratulations! You qualify for the lowest interest rates possible.

If you walked into a bank to apply for a 30 year fixed rate mortgage on a $200,000 home with a credit score of 625, you would have to pay $2700 per year more than a person with a credit score of 700. That is $81,000 you could have saved if you had improved your credit score before applying.

Now that you know what lenders are looking for, and how much money is at stake, why not take a few steps to increase your credit score? Rising your score by as little as 75 points could put a few grand in your pocket rather than giving it all back to the bank.

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