What is a credit score and how do I improve it?

Here is some handy tips on your credit score that might prove beneficial to pass along to clients and prospective clients.

When considering a real estate purchase, you need to have your credit score as high as possible, to ensure your chances of acquiring the home that you want.

What is a credit score?

It is called a FICO score. In general, it is a number from 300 to 850, which is calculated from several things. Such as your payment history, which includes money you previously owed, length of your credit history, new credit accounts open, and how you have used your credit.

Below are 5 steps to improving your credit score:

1. Paying your bills on time is step one. Unfortunately, in hard economic times we often find the decision is not paying our bills on time but which bill do we pay and which has to wait. If you find yourself more often then not in this boat, it is a good idea to speak with the lender or company you owe. For the most part, you'll find they are pretty understanding and accommodating. They may be able to offer suggestions or programs you can utilize to avoid being sent to collections.

2. Just remember, letting items go to collections with definitely hurt your score. They will remain on your record for seven years.

3. If you plan on making a major purchase, such as a home, make that purchase before opening other new accounts, such as furniture for your home, or a new car. These new accounts opened previously to your home purchase will certainly lower your credit score and may hamper your chances of getting that home, and possibly sticking you with a higher interest rate.

4. Constantly monitor your report. Errors and identity theft happen and it is your responsibility to address it should it happen to you. Be sure to contact both the organization that provided the erroneous information, as well as the credit bureau.

5. Carrying high balances on credit cards can severely affect your credit score so it is important to pay them down as soon as possible. Think of it this way. If you have a grand total of $10,000 worth of credit limits available, but you owe $5,000 on all of your cards put together, you are using half of your available credit!

The best loans and mortgages are available to borrowers with FICO scores 700 and above. One of the major credit reporting agencies, reports that the average credit score is 693.

It's important to note that raising your FICO credit score is a bit like losing weight: It takes time and there is no quick fix. In fact, quick-fix efforts can backfire. The best advice is to manage credit responsibly over time.