When you borrow money, your lender sends this credit information to a credit bureau which in turn prepares a credit report defining how well you have managed your debts. From the credit report prepared, the bureau determines your credit score based on factors such as a) previous credit performance, b) current level of indebt ness, c) the time credit has been used, d) types of credit available and e) pursuit of new credit. Thus, your credit score is much affected by your credit history of paying off debts. This factor can also boost your credit rating whereby the past shows that you can pay off your debts quickly and quite fairly.

Importance of your credit rating:

While you apply for a credit card, loan or mortgage your credit rating is checked. Thus, credit reporting makes it possible for banks to issue credit or debit cards, stores to accept checks because depending upon your credit score, they can easily determine the level of risk pose by them.
Most lenders ask for a higher interest rate for one who has a bad credit score as compared to a person having a high credit score.

Tips to improve your credit score:

1. You should make your loan payments on the stipulated time with the correct amount.
2. Try avoiding overextending your credit. In case you are getting different credit cards issued by banks via mail, you might tempt to use them but it would never help you out.
3. You should not ignore overdue bills and if you face any problem while repaying your debt, you can call your creditor to make repayment arrangements.
4. Always be aware of the type of credit you hold because credit from financing companies can affect your credit score.
5. Try to keep your outstanding bills as low as possible and don’t extend your credit continuously to your limit.
6. You should limit your number of credit applications.
7. Since credit is not built overnight try to provide your creditors with a longer time frame to review and a longer history of good credit that builds up your credit performance.