Like it or not your credit score is extremely important and raising you credit score or FICO score can be time consuming and difficult.

You FICO score lets banks understand how creditworthy you are based on a very complex and secretive algorithm that is constantly updated based on new data and general consumer behavior.  What determines a FICO score is tightly guarded secret.  Lucky for us, some people, such as myself, have been attempting to replicate to score for banks to allow them to determine who to approve for a credit card.

There are a few key factors that determine your credit score:

1. The length of your credit history

Having a “thin file” means a short credit history.  The shorter your credit history the worse off you are.  If you don’t already, be sure to open some savings and checking accounts at your local bank.  Also try and get approved for some credit cards for people with short credit histories or bad credit.

If you are young and are a student try applying for student credit cards that are geared especially for you.  A good option is the Discover Student Card.

2. Your Utilization Rate

Your credit card utilization rate is how much of your total credit line you are currently using.

For example, if you’re credit line is $1,000 and you have a balance of $900 you’re 90% “utilize” ($900 divided by $1,000).

For you have a good credit score you need to show that you are a responsible spender and that you can manage credit.  Using your credit card is a good thing for your credit score but you want to stay around the 30% utilization rate marker.  It’s always a good idea to pay off your balance and spend more the next month.  This will also save you money on interest charges.

3. Use credit cards and avoid debit cards

Debit cards are getting popular and are becoming widely accepted since they are usually on the Visa and MasterCard networks.  However, the problem with debit cards is that they don’t help improve your credit history or credit score.

Debit cards are not credit products (thus the name debit cards).  They are associated with you checking or saving account and allow spending on only the money you have saved away.  There is little risk to the banks that is why they don’t report them in the same way to the credit reporting agencies adn they don’t impact you’re FICO score.

Be sure to have at least one credit card product.  But be sure to spend only what you can pay off to avoid carrying a balance and incurring interest charges.  If you are new to credit cards, you’re unlikely to have a low interest rate so be sure to pay the total balance every month.

Enjoy a good credit score

Having a high FICO score and good credit history can be liberating and also save you a lot of money.  Be diligent and patient when rebuilding your credit history and reap the rewards later with better credit card offers and low loan rates such as mortgages and auto loans.  Sometimes you might have to reduce your spending and keep a better watch on your expenses, but believe me, it’s worth it in the long run.