In order to know how you can improve your credit score it is important to understand what makes up the score you see on your credit report. Although each credit report company uses its own proprietary technique to gauge the level of risk each individual presents, there are a number of factors that are thought to be highly important in considering whether an individual has good or bad credit.

Calculating a credit score - Key Factors

• Your Payment History (~35%)
  Your payment history - whether you have made payments on time, whether you have met minimum payments or paid off your debts in full, and how long you have been making payments for or how long ago your last missed payment was are all critical factors in calculating your credit score. Obviously the more reliable you are as a customer, the more likely you are to pay your debts on time, and so the higher credit score you deserve.

  Conversely, bad marks on your account such as defaults, missed or late payments or even bankcrupcies can severly impact your credit score. The severity of a bad mark can be increased by the time it took you to make things right - clearly missing a payment by a month is much worse than being a day or two late.

• Amount Owed On Credit Accounts (~30%)
  Unsurprisingly, your total level of debt plays a big part in your credit score, although it is worth noting that big debts on certain kinds of accounts may affect your credit score more - for example a large amount of credit and store card debt may be percieved as irresponsible and so far more significant than a large mortgage.

  Also worth noting is that the proportion of debt to available credit plays a major part - if you have 3 credit cards with a limit of £1000 and £250 debt to pay on each this will impact your credit limit much less than a single card with a £1000 limit and a debt of £750. For this reason it is sensible not to close your credit card accounts when paying off debts as the additional available credit can help raise your credit score.

  Finally in relation to loans the proportion of installments paid to installments pending can impact your score, too - if you have just taken out a loan this will have more of an impact than when your loan is 75% paid off.

• Length of Credit History (~15%)
  This one is simple enough - the longer you have held credit accounts the more history you have, and the more data there is to base a credit score judgement on. If you have held an account for a long time and been a good customer (ie paid off your debts on time rather than never used your credit facilities) this will positively impact your credit score.
• New Credit Accounts & Applications
  Both the number of recent credit applications and accounts opened have an effect on your credit score, and again the proportion of new accounts to existing accounts plays a role too. Each time you apply for new credit - or have your credit checked by a 3rd party (for example when starting some new jobs etc) - it is recorded in your credit history, and the recency and frequency of these credit inquiries both have an impact.
• Number & Types of Credit Accounts Used
  The types of credit and the number of credit accounts you have all have implications on your credit score. If you are a trusted customer then a larger number of accounts may not be as much of an issue as a new customer or an individual with a bad credit history. Similarly we can assume that some types of credit such as payday loans and store cards have a far more negative effect than others such as consumer bank accounts.

With a better understanding of how a credit score is calculated it is far easier to take steps to avoid a low credit score, and leaves you better equipped to plan for major credit applications such as purchasing a new house.