Your FICO score is the most widely used credit score and it is calculated using an algorithm developed by the Fair Isaac Corporation to measure your credit worthiness. Lenders will pull your credit score whenever you apply for a loan to determine if you are worth the risk of lending money to and, assuming you are approved, how much interest to charge. If you have a low credit score, all is not lost and there are several steps you can take to bring your score up, but no instant fixes.

Pull Your Credit Report

You are entitled to a free copy of your credit report once every 12 months by federal law. Do not worry that pulling your own credit score will lower your score; inquiries you initiate do not harm your score. When you get your credit report, carefully check it to make sure that there are no errors, such as late payments when you paid on time or credit limit errors. Credit limit errors can be significant, because if you have a much larger credit line than your credit report states, your debt-to-available credit ratio will be much higher than it should be, which will bring down your score. If you find an error, write a letter to both the creditor and the credit bureau including copies of any documentation you have to prove your case.

Payment History

The single largest factor in calculating your credit score is your payment history, which accounts for 35 percent of your credit score. When you are behind on your payments, your creditors report how many days late you are to the credit bureaus, which lowers your score. Late payments are also reported. As soon as possible, get up to date on all of your accounts so that lenders will start reporting your accounts as current. Current does not mean that you have completely paid off the account, rather that you are up-to-date on your payments. For a credit card, this can mean simply making the minimum monthly payment. In the future, make it a point to pay all of your debts on time. The FICO score weighs recent payment history more heavily, so your score can start to improve soon.

Balances

The second largest piece of the credit scoring is your balance, which accounts for 30 percent of your credit score. If possible, pay down your balance to reduce your outstanding debt. Try to keep your outstanding balance to less than 30 percent of your available credit on each of your accounts. For example, it is better to have your debt spread across a few credit cards, so each one is using 25 percent of the credit line, rather than have just one credit card that is using 70 percent of the available credit. In addition, do not close credit cards that you have paid off, because that will reduce your available credit, which makes it look like you are using a higher percentage of your available credit. This in turn lowers your score.

Source:

MyFICO: What's in Your FICO Score?

MyFICO: Improving Your FICO Credit Score

MSN Money: 7 Fast Fixes for Your Credit Scores

More Information:

Annual Credit Report