Today you’ll find that many people are dealing with identity theft. Sadly, once your identity is stolen, your entire life can be ruined for some time. You’ll have to straighten out things with lenders, you may have a hard time getting credit, and cleaning up the mess can be a huge task.

Instead of having to sort out a mess, it’s definitely better to work on avoiding identity theft in the first place. There are many ways that you can be proactive and avoid being a victim of identity theft. Here are six great simple ways that you can avoid identity theft.

Way #1 -- Never Give Out Your Social Security Data -- If you want to avoid becoming a victim of identity theft, then you need to protect your social security data. This means that you should never give out this information unless it is absolutely necessary. Also, make sure your Social Security car is kept in a place that is safe and secure.

Way #2 -- Keep Track of Your Wallet -- Start keeping track of your wallet. If you lose your wallet or purse, this increases your chance of becoming a victim of identity theft. Keep track of your wallet and guarding it will help you to avoid this problem.

Way #3 -- Check Out Bank and Credit Card Statements -- You should be checking out your bank and credit card statements on a regular basis. Look out for any purchases you see that you didn’t make. If this occurs, talk to the bank or credit company as soon as possible.

Way #4 -- Shred Important Documents -- If you have important documents that contain sensitive information, don’t just throw them away. Get a shredder and shred these documents. Otherwise someone may be able to take the documents out of your trash and get access to important information about you, leading to identity theft.

Way #5 -- Check Your Credit Report Each Year -- Each year you should be checking out your credit report. Not only is this good for keeping track of your credit score, but you should be looking to make sure that no strange accounts show up. If you notice a card or account that you didn’t apply for, you need to contact the authorities and the credit reporting agency immediately.

Way #6 -- Use Good Password for Bank, Phone, and Credit Card Accounts -- When you are setting up bank, phone, and credit card accounts, make sure that you use good passwords. Don’t use obvious passwords, such as your birthday, middle name, or mother’s maiden name. A good password can keep your account from being hacked and your identity stolen.

With these tips, you can keep identity thieves at bay. Identity theft can ruin your life. So, it’s time that you do something to prevent it. Make sure you use these tips and you’ll be more likely to avoid becoming a victim yourself.

This simple guide is designed to help you finally get out of debt.

The average American carries $8,000 in credit card debt. If cards are paid off using the minimum payment option, $8,000 can take 20+ years to pay off. That’s a scary thought, huh? 30 years from now you could still be paying for a dress or iPod that you barely used. This is a harsh reality for many Americans and, chances are, if you’re reading this article, then you’re in debt and are about to face this reality.

One thing to keep in mind, though, is that you control your own future. If you set your mind to it, you can get out of debt. Now you may be asking “how can I get out of debt when I don’t know how?” It’s a question that many people with debt ask. How to get out of debt is often a confusing and long process. In this article, we will be going over, in depth, how to get out of debt so that the process will be as simple and quick for you as possible.

Know Your Options

Before you can even begin the process of getting out of debt, you should first explore all your options so that you can find the method that suits you best. There are generally two ways of getting out of debt without hurting your credit score further:

• Debt Reduction Plan: A debt reduction plan is provided by a credit counseling agency. They will, essentially, take all of your credit card bills and combine them into one or two monthly payments. Additionally, they will negotiate with creditors to lower interest rates. A debt reduction plan is good for those who are unable to figure out how to get out of debt on their own. For more on debt reduction plans, please see our article on them.

• On Your Own: You completely determine how to get out of debt. You’ll create your own repayment plan and possibly negotiate with creditors to lower interest rates. This is the method of getting out of debt which is covered in this article.

Step 1: Stop Charging and Cut up the cards!

The absolute first step to getting out of debt is to quit charging. You obviously cannot expect to get out of debt if you’re still charging. To prevent you from being tempted to charge, you can cut up the credit cards.

Step 2: Look at all of your bills

The next step is to look at every one of your bills. See how much debt you owe to each company, how much interest they charge on the debt and how much the minimum payment is. Create a spreadsheet (perhaps by hand or on the computer) and write all the details associated with each card. This allows you to see exactly how much you owe.

Step 3: Add all debt to see your total debt

It’s important to know the total amount of debt owed so that you can formulate an accurate plan. Add every individual debt together to determine your total debt. This will be the very basis of your plan.

Step 4: Create a budget

Next, you must figure out how much a month you can delegate toward debt. If you don’t know how to create a good budget, it’s time to check out our article on creating a budget. After you’ve gone through that, progress to the next step.

Step 5: Look at the interest rates and balance for each account

It’s time to create a plan to pay your debt off in the best possible manner. Take a good, hard look at the interest rates and balances on your credit cards. Strive to pay off the cards with the highest interest rates and balances, as those are most harmful to your credit report.

Step 6: Phone the credit card companies

A sometimes uncomfortable aspect of getting oneself out of debt is to actually phone the credit card companies. Many people who are in debt shun communications with credit card companies because they think the companies will treat them rudely. However, this is a huge mistake.

Most credit card companies employ workers who are helpful and friendly. Before you make a concrete plan for eliminating your debt, phone the credit card company. Explain your situation (that you want to get out of debt) and ask for a reduction of the interest rate. Most credit card companies are happy to oblige because they will be getting their money back.

Step 7: Re-Evaluate

After you’ve (hopefully) gotten the credit card companies to reduce your interest rates, it’s time to re-evaluate. You’ll want to, once again, pay off the credit cards with the highest interest rates and balances first.

Step 8: Pay more than the minimum on all cards

Paying the minimum, as we already said, can stretch out the amount of time you’ll be paying off the cards. Thus, it’s a great idea to pay above the average on all cards, regardless of how much you may be spending on the higher interest cards. Try to pay at least $10-15 above the minimum on each card.

Step 9: Create a plan

Now that you know how much to pay out to each creditor, it’s time to create your plan. Write down exactly how much you’ll be paying out to each creditor and add up the total amount you’ll be paying to creditors each month. Put this amount down on your budget so that it fits in with all your other expenses.

Update this plan every month with the updated balances and, as you pay off creditors, cross them off their list. This does two things: it holds you accountable and gives you a sense of accomplishment when you successfully pay off a creditor.

Step 10: Make payments on time

Late fees can increase minimum payments and make it that much harder to pay off the debt. That’s why you should do everything you can do to avoid these late fees. Send your money out to creditors a week before the due date on the specific credit card. If it’s not an option for you to send them out that early, arrange to wire the money to the credit card company a day or two before the due date. Doing so helps you completely avoid costly late fees.

Bonus Step: After the debt is paid off, do not get as many credit cards before

Once credit card companies see that you’ve paid off, or nearly paid off, debt, they’ll start sending you a lot of applications for new credit cards. Resist the urge to sign up for every offer that is extended to you, as overloading yourself with credit cards can harm your credit score and cause you to get into debt all over again. Try to limit yourself to two credit cards and you should be fine.

Bonus Step: Request a credit report each year

You can usually request a credit report for free every year. This report tells you about any outstanding debt you may owe, as well as what your credit score is. Knowing your credit score is crucial, so don’t skip this step.

If you have no other options, bankruptcy can allow you to have a “fresh start” but it comes at a price.

Bankruptcy allows individuals or businesses who owe others more money than they’re able to pay to either work out a plan to repay the money over time or completely eliminate (”discharge”) most of the bills. With few exceptions, any person or business owing money to a creditor can file a bankruptcy petition. When filing bankruptcy, there are the two types of debt to look at, Secured and Unsecured Debt. Secured debt is a creditor’s claim that is secured by a lien of some type in your property, either by your agreement or involuntarily such as with a court judgment or taxes.

A creditor can generally claim the property that secures the debt in the event of bankruptcy. Unsecured debt is not tied to any type of property, leaving the creditor without any claim to property. However, some situations may not warrant filing for bankruptcy. If your financial situation is temporary, you may consider making arrangements with individual creditors for a change in payment amounts or a reduction in the total amount due. If an individual has little in the way of property or money, filing bankruptcy may not be necessary, as the creditor may not be able to collect the debt.

Types and Chapters of Bankruptcy

Consumers typically file Chapter 13 bankruptcy, where repayment is made to creditors, or under Chapter 7 where the debts are discharged. Each chapter of bankruptcy spells out what bills can be eliminated How long payments can be stretched out What possessions you can keep.

The selection of which type to file depends on your particular circumstances and whether or not there are assets available to repay all, or part, of the debts owed. Bankruptcy laws can be complicated, so determining if you should file and what type of bankruptcy you need should be made with the input of an experienced bankruptcy lawyer. Generally, you can convert a case once to any other chapter for which you are eligible. The request to convert can be a simple one-sentence document.

There are issues to watch when going from on chapter to another, though. For example, when moving from a Chapter 13 to a Chapter 7, you will need to review whether you have acquired items that will now be considered property of the estate under Chapter 7 that was not part of the previous filing. There are, however, limitations on how often you can file. A Chapter 7 bankruptcy can be filed every 8 years from a previous chapter 7 filing or 6 years from a prior chapter 13 filing. Chapter 13 can be filed 4 years from a prior Chapter 7 filing or 2 years from a prior Chapter 13 filing. Filing bankruptcy can adversely affect your ability to obtain future credit, rent housing and even negatively impact a job application, so any decision to file must be carefully considered.

How to Begin

There are a few things you must do when preparing to file bankruptcy. You need to compile a listing of the past and present debts you have. The petition in a bankruptcy filing includes schedules of assets and liabilities as well as a statement of financial affairs. These documents are filed with the bankruptcy court, along with payment of the filing fee. Also, talk with your spouse or significant other before filing. If one spouse files and the other does not, the one who does not file could possibly be responsible for the debts. Check this out carefully before filing.

When finally deciding to file with your spouse, you must choose between A joint petition or a single bankruptcy petition. A joint petition is the filing of a single bankruptcy petition by an individual and the individual’s spouse. Only people who are married on the date they file may file a joint petition. Unmarried partners must each file a separate case. In the case of a divorce, you may still be responsible for some debt. If you are a co-signor with your ex-spouse on a debt, the creditor can require the entire payment of that debt from you even though the divorce decree assigns the debt to your ex-spouse. Your divorce decree may address any recourse you may have against your ex-spouse should he or she default on the loan obligations set out.

What Can’t be Discharged

The debts that cannot be discharged vary between the different chapters of bankruptcy. Generally, the following cannot be discharged:

• Debts for taxes owed to local, state or federal agencies
• Debts for money, property, services, or an extension, renewal, or refinancing of credit, which was obtained fraudulently
• Debts which were neither listed nor scheduled or which the debtor waived discharge
• Debts which are owed to a spouse, former spouse, or child of the debtor, for alimony, maintenance, or support of such spouse or child, in connection with a separation agreement, divorce decree or other order of a court of record
• Debts owed for willful and malicious injury by the debtor to another person or property owned by another.
• Debts for government-sponsored educational loans, unless it can be shown that repayment will cause an undue hardship
• Debts for death or personal injury caused by the debtor’s drunk driving or from driving while under the influence of drugs or other substances
• Debts incurred after a bankruptcy was filed

What you lose and keep in bankruptcy

Exemptions allow an individual to “exempt”, or keep, certain kinds of property. State law defines what assets are considered exempt, but typically includes:

• Jewelry
• Vehicles up to a certain amount
• Equity in a home up to a certain amount
• “Tools of the trade” or tools and equipment necessary to allow the individual to continue working

Retirement accounts are typically kept. Accounts that are ERISA-qualified are not considered property of an estate and cannot be taken. Social Security benefits are generally protected from assignment or garnishment for debts in bankruptcy. The Social Security Administration’s responsibility for protecting benefits against legal process and assignment usually ends when the beneficiary is paid. Once paid, the benefits continue to be protected only as long as they can be identified as Social Security benefits. For example, money in a bank account where the “only” deposits into the account are direct deposits of Social Security benefits are identifiable and generally protected.

Losing your home is a possibility. The factors that affect your ability to keep your home are:

• The state you are in and the exemptions allowed
• The status of your loan (current or in foreclosure)
• The type of bankruptcy you’re filing (Chapter 13 provides more protection than Chapter 7 as long as payments are current)

Credit Repair Companies

Most consumers can be just as effective as a credit repair company in dealing with credit reporting agencies and improving their credit ratings — it simply takes time and patience. While there are non-profit companies in each state that offer credit guidance for a small fee, “We can fix anything” credit repair companies offer very little in comparison to the fees they charge.

Creditors after Bankruptcy

During the time the debtor is working out a plan or the trustee is gathering and preparing the assets to sell, the bankruptcy code dictates that creditors must stop all collection efforts against the debtor. As soon as the bankruptcy petition is stamped “Relief Ordered” upon filing, you are immediately protected from your creditors. If a creditor continues to attempt to collect a debt, immediately notify the creditor in writing that you have filed bankruptcy, and provide them with both the case name number and filing date, or a copy of the petition that shows it was filed. If the creditor continues to collect, the debtor may be entitled to take legal action against the creditor.

The bankruptcy court notifies, by mail, all creditors advising them of:

• The filing of the bankruptcy
• The case number
• The automatic stay
• The name of the trustee assigned to the case (if filed under chapters 7 or 13)
• The date set for the meeting of creditors
• The deadline, if any, set for filing objections to the discharge of the debtor and/or the discharge of specific debts
• Whether and where to file claims

The exact information in the notice may be slightly different depending on the chapter under which the case is filed.

Each type of bankruptcy allows creditors to object to specific debts included in the plan or the manner in which the plan addresses the repayment or discharge.

In Chapter 7 Bankruptcy, creditors generally have 60 days after the first creditors meeting to object to the discharge of a specific debt. If no objections are filed, the court will issue the discharge order and the trustee will proceed to collect and sell the assets, then distribute the proceeds to the creditors under a predetermined system. If there are objections, the bankruptcy itself, less the objected debts, continues through to discharge. It may be necessary to have a trial before a judge to resolve the items that creditors objected to.

In a Chapter 13 case, creditors are given an opportunity to object to the plan for repayment. If there are no objections filed by creditors or the trustee, the plan may be confirmed as filed. After the plan is confirmed, the trustee will distribute the payments from the debtor to creditors until the plan is completed. Upon completion of the Chapter 13 plan, the court will issue a discharge order, the trustee will prepare a final report, and the case will be closed.

Bankruptcy is complex and must be done right for you to be protected.  I highly recommended consulting with a lawyer before making a decision.

9 Tips For Improving Your Credit Score

There are many things in life that are very important. Something that many Americans overlook is their credit score. Credit scores are incredibly crucial, as they dictate how much of a loan you may be eligible for, how much interest you’ll pay and what credit cards you may qualify for. They even influence how much of a student loan you or your child could be eligible for.

Most Americans don’t know that they qualify for a free credit report each year. This credit report details any outstanding debts they may have, plus tells them what their credit score is. If you haven’t already taken the time to get your free credit report, please do so now. Once you know what your credit score is, you’ll know what to improve.

If your credit score is less than satisfactory, you’ll probably want to take the steps necessary to improve it. In this article, we’ll be going over the steps to take to improve your credit score. By improving your credit score, you will make your reputation better which will allow you to secure necessary loans at good interest rates.

Tip #1: Pay your bills on time

One of the leading reasons why credit scores are hurt is because bills are not paid on time. Thus, one of the easiest ways to improve your credit card score is to simply pay your bills on time. If you can, you may even want to pay your bills a bit ahead of time. Doing so will tell creditors that you are faithful about paying your debts back and will also increase your credit score.

Tip #2: Don’t Carry A Lot of Debt

The average debt an American carries is around $8,000. While it is assumed that as long as you pay the bills on time, you’ll have a good credit score, this isn’t always the case—especially if you have a lot of debt. Try hard not to carry too much debt and, if you already have a lot of debt, make efforts to pay it back as quickly as possible. By carrying too much debt, you are only making yourself look bad.

Tip #3: Make Payments Above the Minimum

One common assumption is that as long as you make the minimum payment on time, your credit report will be good. That’s not really true. As a responsible credit card user, you should strive to make payments above the minimum. Not only will it help your credit score, but it will also allow you to pay off the debt quicker. By paying just the minimum payment on a $4,000 debt, for instance, it may take you as long as 20 years to pay it off. However, if you pay just $10 above the minimum, it won’t take you that long to pay of the debt. So always try to pay more than the minimum to help reduce your debts quicker.

Tip #4: Take a Close Look at Your Credit Report

Many people assume that the credit report is always correct. Occasionally, though, mistakes may be made which hurt a person’s credit score. Have you noticed any inconsistencies on your credit report? If so, contact the creditor associated with the debt or your local credit agency and report the issue. In most cases, the creditor/credit agency will remedy the problem and your credit score will be raised. Correcting inconsistencies on your report is by far the easiest way to improve your credit score.

Tip #5: Make a Habit of Consistently Paying Bills on Time

Your credit score will not improve overnight. It usually takes a lot of time and good habits to improve your credit score. Establish a history of paying bills on time (and ahead of time) and of making above minimum payments. After a period of time, you will earn the reputation of being a good person to loan to, and, as a result, you will have a higher credit score.

Tip #6: Don’t Apply for Lots of Credit at Once

People are bombarded with new credit card offers all the time. While it may be OK to sign up for a new credit card here and there, it is a bad idea to sign up for several at once. This sends a signal to creditors that you are desperate for credit and are a risk to loan to. This also reduces your credit score. Resist the urge to sign up for many credit cards at once and don’t overextend yourself.

Tip #7: Never Exceed 35% of Balance Limit

When given a $3,000 credit limit, for instance, many people try to use as much of it as possible. That’s really not a good idea, as using as much as possible creates a debt that is unmanageable. One of the keys to achieving a great credit score is to learn how to effectively manage debt. You should never exceed 35% of the credit limit. So if you have a $3,000 credit limit, don’t use more than $1,050 of it.

Tip #8: Pay Off Debt Instead of Transferring It from One Place to Another

Ever seen a credit card offer with a low transfer rate and entertained the thought of transferring other credit card debt to the new card? It’s something that many Americans consider and it is something to avoid if you intend on improving your credit score. This is because transferring one debt to another card makes you look bad because it shows that you weren’t able to pay it back one way and had to resort to moving it around. That’s why you should just keep the debt in one place and pay it off, rather than moving it all around.

Tip #9: Don’t Close Accounts if You Still Have Debt Remaining on Them

Closing accounts before they are fully paid is a huge mistake to make and it hurts credit scores. If you are planning on not using a certain credit card anymore, you should wait to close it until after you have paid it off. In order to keep yourself from charging, simply cut up the card into pieces and keep it in a drawer. One other thing to remember is to never close an account around the time of a loan, as this can also harm your credit score.

By doing the above things mentioned, you can improve your credit score and your reputation.

Debt has the ability to ruin lives. If you’ve gotten yourself into debt, you must make an adequate plan in order to take the steps to get out of debt. Paying off your credit cards and other debt is only a part of the equation. The other big part is actually making a budget. Without a clear-cut budget for your money and expenses, you are setting yourself up for failure.

Budgets are key to eliminating debt

One of the big reasons why many people go into debt is that they do not have control over their finances. They will spend money without thinking and will not know what to do when the first big bill comes along. People with budgets are far less likely to go into debt than are those without budgets.

Budgeting is a skill that people often do not learn. Perhaps you’ve been putting it off for some time. That’s understandable, as many Americans seem unwilling to limit their spending in anyway. The American dream is to have as much as possible, and the thought of budgeting is a bit silly.

However, when you look at the big picture (including not just the present, but the future—retirement etc.) it becomes apparent that budgeting is absolutely necessary for survival. Even those who earn comfortable livings and seemingly don’t have to worry about finances can benefit from solid budgeting.

We will be covering the basics of creating a solid budget in this article.

Step 1: Examine Your Salary

Do you know exactly how much you make each month? Without this knowledge, creating a budget will be impossible. Look at your pay stubs for the past few months and see how much, on average, you are taking home (after taxes). This is what you have to work with when you create the budget. This amount must be accurate—otherwise, your whole budget will be off.

Step 2: Look at Your Monthly Expenses

What are you spending your money on each month? Make a list of everything you are spending money on each month (feel free to drag out your monthly bills and check book to see how much you are paying out for each expense). This will include debt (credit cards, mortgages, car payments etc.), insurance (home and auto), utilities (gas and electricity, plus water), taxes (property taxes), groceries, clothing, basically anything that you spend money on.

Step 3: Using the List, Group Together the Items

Using Microsoft Spreadsheet, create a table for your expenses. Group debt-related expenses together (so put your credit card bills, car bills and mortgage bills) in a subject of “debt”. Then group utilities together under a subject of “utilities”. Put insurance bills under a subject of “Insurance”, and then put groceries and other household related costs under a subject of “household expenses”. Finally, put all of these under one big subject of expenses.

Step 4: Write Down How Much You Are Paying in Each Category

For every single item on your list, make a note of how much you are paying. Once again, the information you give must be accurate, or else it could throw off the entire budget.

Step 5: Add Up All the Expenses

At the very bottom of your spreadsheet, make a new category that says “total expenses”. In it, write down the sum of everything on the list. This will show you exactly how much money may, or may not, be left over for “spending”.

Step 6: Subtract the Expenses from the Earnings

Hopefully when you subtract the expenses from the earnings, you get a positive number. ? If not, you’re obviously in too much debt and should seek some form of help for that (be it credit counseling or bankruptcy). Let’s assume, though, that you have money left over after the expenses. This money should be used in a logical way and should be well-planned.

Step 7: Decide What to Do With Excess Money

When you determine how much money is left over, you should then figure out what to do with the money. One of the best things you can do with it is to save. Ideally, you want to save about 10% of your salary. While this isn’t feasible for everyone, it should be for most. If your left over amount is about 10% of your salary, try very hard to save as much of it as possible. If your left over amount is greater than 10% of your salary, you can then feel free to save/invest 10% of it and then use whatever is left to maybe “treat” yourself or your family to something. This could be a vacation or maybe a College savings account for your kids.

Step 8: Write Down What You Are Doing With Excess Money

Create a new category titled “left over money”. Delegate the left over money within that category. You may wish to put down that you’ll be setting aside “X” amount of money each month in a checking or savings account. You may also wish to put down that you’ll be putting aside “X” amount of money each month for extra things like vacations, nights out etc.

Step 9: Make Sure All Amounts Agree

Add your total expenses to the totals of your “left over money” category. Make sure that the two amounts, combined, add up to your salary amount (earnings). If they do, your budget is in balance. If not, you must make necessary changes to your “left over money” category to make the budget in balance.

Tips for Making a Budget Work

Making a budget work isn’t always as easy as setting up the budget. In fact, it can be downright difficult for many people. Here are three easy tips to make your budget work for you.

1. Set aside funds for each category. So if your budget says to spend $200 a month on groceries, only put $200 aside for groceries. Do not overspend.
2. Write down everything you buy and everything that is an expense. Doing so helps to keep you accountable and helps to keep you on the right track as far as the budget is concerned.
3. Always strive to stick to the budget. If you cannot afford something and it is not in the budget, do not buy it. Even if you really want that big screen TV, if you cannot afford it, do not make the purchase as it will completely goof up your budget and your credit.

The bottom line is that if you stick to the budget, you’ll be in good financial shape.

Many people hear this term, yet few actually know what it is. This is a number that can control every aspect of your life. The credit score is a number ranging from 300 to 900 that reflects the credit worthiness of a borrower, and is primarily determined by timeliness of past loan payments. Lenders calculate this number with the assistance of computer systems as part of the process of assigning rates and terms to the loans that they make.

Who Is FICO?

FICO stands for Fair Isaac & Co. A FICO score is a credit score developed by Fair Isaac & Co. Fair, Isaac began its pioneering work with credit scoring in the late 1950s and, since then, scoring has become widely accepted by lenders as a reliable means of credit evaluation. A credit score attempts to condense a borrower’s credit history into a single number. Fair, Isaac & Co. and the credit bureaus do not reveal how these scores are computed. The Federal Trade Commission has ruled this to be acceptable. FICO scores are available through the entire major consumer reporting agencies in the United States and Canada: Equifax, Experian and TransUnion. (FICO is a registered trademark of Fair Isaac Corporation).

Credit Score Breakdown

Your credit score is calculated in a very similar manner to how you would earn a grade in a classroom. A teacher calculates grades by taking scores from tests, homework, and attendance, weighting each one according to importance in order to come up with a final total. A credit score, like these scholarly gradings, use a combination of values to achieve a final result.

The number itself can range from 300 to 900. The formula for exactly how the score is calculated is proprietary information and owned by Fair Isaac. Here, however, is an approximate breakdown of how it is determined:

35 percent of the score is based on your payment history. One of the primary reasons a lender wants to see the score is to find out if (and when) you pay your bills. Thus, this is obviously the most important piece of information, and is weighted most heavily. The score is affected by how many bills you have paid late, and if any bills were sent to collections any bankruptcies, etc. When these things happened also comes into play. The more recent, the worse it will be for your overall score.

Late payments are not an automatic “score-killer.” An overall good credit picture can outweigh one or two instances of late payments. However, having no late payments in your credit report does not mean you will get a “perfect score.” 60%–65% of credit reports show no late payments at all. Your payment history is just one piece of information used in calculating your score.

30 percent of the score is based on outstanding debt. How much you owe on car or home loans falls into this category. Having credit accounts and owing money on them does not mean you are a high-risk borrower with a low score, however, when a high percentage of a person’s available credit has already been used, this can indicate that a person is overextended, and is more likely to make payments late or not at all. Credit cards that are at their credit limits also inversely affect this amount. The more cards you have at their limits, the lower your score will be. The general rule of thumb is to keep your card balances at 25% or less of their limits. Even if you pay off your credit cards in full every month, your credit report may show a balance on those cards. The total balance on your last statement is generally the amount that will show in your credit report.

15 percent of the score is based on the length of time you have had credit. The longer you have had established credit, the better it is for your overall credit score. This is because more information about your past payment history gives a more accurate prediction of your future actions. If you have been managing credit for a short time, do not open many new accounts too rapidly. New accounts will lower your average account age, which will have a larger effect on your score if you do not have a lot of other credit information. Even if you have used credit for a long time, opening a new account can still lower your score.

10 percent of the score is based on the number of inquiries on your report. If you have applied for a lot of credit cards or loans, you will have many inquiries on your credit report. These are bad for your score because they indicate that you may be in some kind of financial trouble or may be taking on a lot of debt (even if you have not used the cards or gotten the loans). The more recent these inquiries are the worse for your credit score. FICO scores only count inquiries from the past year.

10 percent of the score is based on the types of credit you currently have. The number of loans and available credit from credit cards you have makes a difference. There is no magic number or combination of types of accounts that you should not have. These actually come more into play if there is not as much other information on your credit report on which to base the score. The score will consider your mix of credit cards, retail accounts, installment loans, finance company accounts and mortgage loans. It is not necessary to have one of each, and it is not a good idea to open credit accounts you don’t intend to use. The credit mix usually will not be a key factor in determining your score – but it will be more important if your credit report does not have a lot of other information on which to base a score.

These are the five factors that determine your Credit Score. Hopefully, by reading this, you will be able to implement greater efficiency in improving your score.