by Tamara Brown

Created on: April 17, 2009

Your credit score has a bigger impact on our lives than many people may realize. It not only affects the APR you will receive for a loan, or even if you get the loan in the first place. It can also impact your car insurance premiums, the deposit you are charged to turn on utilities, your ability to get a cell phone and possible job prospects. For each of these reasons, you will need good credit to get the best deal. However, good credit is like a shelter from a storm. Once you need it, it is too late to build it. You need to start building your credit today.

There are five basic factors that affect your credit score. From most to least important these are payment history, outstanding debt, credit history, credit applications and types of credit. The exact formula for determining your credit score is a closely held industry secret, but by targeting each of these areas, you can build good credit that can last a lifetime.

Payment History

The largest portion of your credit score is based on you making timely payments on your debt. Of course, this means that you must have some debt in order to show that you can make timely payments on it. Unfortunately, paying your phone and utility bills on time will not do anything to improve your credit score, while paying them late will hurt your score. Other loans such as car loans, mortgages or personal loans from a bank will help your score as long as you make consistent, on-time payments.

Debt to Credit Ratio

Almost as important as making timely payments is to be aware of your debt to credit ratio. Creditors do not like to see you using a high percentage of your available credit. Finance experts sometimes disagree as to the exact percentage that is optimal, but it is a good rule of thumb to never use more than 25% of your available credit. So, if you have a credit limit of $100, you don't want to have a balance of more than $25. This applies to the balance on an individual card as well as to your total debt and total credit available.

Credit History

Another consideration of your credit score is the length of time that you have had credit, and the last time there was activity on the account. For this reason, it can actually hurt your score to close an old credit card account or to never use a card. Instead, keep it open and use it once a month or so to keep it active. This part of your score will build over time.

Credit Inquiries

Too many credit inquiries can drastically reduce your score. Therefore, you will want to limit the amount

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