To develop a credit scoring model, random loan customers are sampled statistically to identify characteristics that relate to patterns of repayment. Then, each of these characteristics is assigned a weight based on how strong a predictor it is of the likelihood of repayment. The higher the score, the lower the risk for the lender. A borrower with a score of 660 or greater is considered to be of less risk for the lender, while a score of 620 or lower is a poor credit score. Credit scoring cannot rely on factors such as race, religion, gender, income, address, employment, national origin, or marital status, but some scoring systems may use age as a factor in determining a credit score.

Credit scores rely on the following:

• Occupation and time at present job.
• If you are a homeowner.
• Past payment performance.
• A pattern of late payments brings down the credit score.
• Credit utilization, or the way credit is used. Borrowers who borrow to the limit of their credit cards are considered higher risk.
• Having both a checking and savings account can improve your credit score.
• Credit history, or how long the borrower has been borrowing.
• Someone who has had credit for a long time is considered less risky.
• Inquiries into the applications for credit. The number of times a person has asked for credit or has had an inquiry into their credit record affects the credit score. Frequent requests for credit or frequent inquiries in a short period of time bring down the credit score.
• Types of credit in use secured credit card, installment loans, revolving loans, or finance company lines.

Practicing more responsible borrowing and repayment habits will help improve your FICO score. One thing to be aware of is that while consolidating your bills and closing some of your credit cards may seem like a good idea at first in an attempt to raise your FICO score, it can actually negatively affect it. It brings you closer to your credit limit by removing available credit without reducing your existing debt.

As you can see, your credit score is determined by a number of factors and it is important to take all of these into consideration before taking any action. Improving your FICO score is not something that happens overnight, but taking steps now will get you far on the road to less debt and more cash.

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