While a credit report lists your credit accounts, payment history and other information, it is your credit score that tells potential lenders how responsible you have been with credit in the past. Lenders can legally request this document to assess how risky it is to lend to you.

Typically called a FICO score (named after the company that developed it, Fair Isaac & Company) the numbers range from 300 and 850. Lenders believe the higher your number, the better the chance you will make your loan payments and make them on time.

About 60 percent of people have credit scores of 700 and above. The best number to have is 720 or above. If your score is 720, there’s really no need to try and raise it because lenders lump you in the same category as folks with a score of say 800 or 820. However, if your number is below 700, it’s definitely worth your time to try to improve it.

Although you can’t raise your score overnight, you can do so fairly quickly. The scoring formula gives more weight to recent activity, meaning even six months of paying bills and other payments on time is going to have the largest positive impact.

Here are three ways to improve your FICO score:

• Pay down balances. This lowers the amount of credit you are using relative to how much credit you have available to you. Remember, FICO scores reward people who use a smaller percentage of their available credit.
• Avoid opening a lot of new accounts at once. This makes lenders uneasy. Many recommend not having more than five credit cards. If you decide to close some credit accounts, close the newer accounts first. However, don’t close more accounts than necessary because this lowers your ratio of debt to available credit.
• Rotate and use all of your cards. If you do have a late payment, it is worth a call to the lender to see if they will remove this information from your records in a “goodwill adjustment.” You can choose to dispute the late payment report. While it’s in dispute, the item will stay on your credit report but not factor into your FICO score.

While there is no question that having a good credit score is essential, it is also important to point out that FICO scores do not take your age, income, assets or employment history into account. Specific lenders may pay closer attention to income, assets and employment history. Additionally, FICO scores treat all late payments equally; however, an auto finance company, for example, can look at customized scores tailored for their industry. If you have been late on credit card payments but never missed a car payment, they may take this into consideration.

Related Reading
33 Ways to Raise Your Credit Score: Proven Strategies to Improve Your Credit and Get Out of Debt, by Tom Corson-Knowles
The Credit Cleanup Book: Improving Your Credit Score, Your Greatest Financial Asset, by Shindy Chen
Financial Resolution: Clean Up Your Credit | Banking & Credit | US: www.money.usnews.com