You credit score is a three-digit number which can fall somewhere between 300 and 850. This number is used by a mortgage lender to determine how financially capable you are to pay back what you owe to them and is further used to determine the loan amount and rate.

If you have a low or average credit score, you may find it tough to get a mortgage. The best way to improve this situation is to raise your credit score. A credit score is calculated based on factors such as your past payment history, the amount you currently owe, the length of your credit history, the different credit types you have taken and the number of new credit accounts that you have recently opened.

Here is how these factors determine your overall score:

• Payment History – 35%

• Amount owed – 30%

• Credit History Length – 15%

• Credit types – 10%

• New Credit – 10%

If you want to improve your credit score you have to individually address each of these factors and do what it takes to change them to a favorable level. In this article we will look into what steps you can take to improve your score for each factor.

How to improve your payment history – Since your payment history is a reflection of how well you have handled your finances to the point where you apply for a mortgage, you can improve this by:

• Making payments on time!

• Settling past dues immediately and not delaying on them. If you feel that you cannot do this immediately, call up your creditor and explain the situation to them. Suggest a feasible plan for you to repay the debt and any interest owed. Negotiate with them about keeping a part of the delayed payments off your credit report.

• If you feel stuck, you should seek professional help from a non-profit credit counselor, who will work with you to develop a plan on how to get off your credit lines and pay back your debts.

How to lower your debts - If you want to improve your credit score, you have to reduce the amount you owe to your creditors. This can be done in many ways like:

• Reduce your credit card balances and pay off money you owe by setting aside a small amount every month towards it.

• Do not close any unused accounts which have a zero balance. They are useful to improve your score.

• Many people open new accounts as a solution to improving their debt-to-credit-limit. Actually, this can lower your credit score, so avoid it.

How to handle taking new credit lines/cards – If you decide to open new credit you need to keep in mind the following to improve your credit score:

• Never open too many new credit accounts in a short period of time. It shows that you are unwise in handling your finance and lowers your credit score.

• Pay what you owe on your credit accounts on time and do not exceed you credit limits.

Showing something good on the Length of Your Credit History - In this issue the only thing that you can do is manage your credit accounts wisely. If you have been taking credit for the past three or five years, do not open any more accounts because this lowers your credit score.

How to handle different types of credit – There are many different types of credit that you can take and here how to handle them well to improve your credit sore:

• If you have a mix of different credit types like credit cards, installment loans, loans with fixed payments and manage them well you can improve your credit score. However, just to have this mix, don’t start creating new accounts.

• Pay off some of your installment loans if you have too many of them.

In short, you can improve your credit score by taking the following steps:

• Never skip paying your bills. You can very easily raise your credit score by just paying your bills on-time every month.

• If you have too many credit cards, pay off the balances on some of them.

• Do not open any new credit card accounts within 30 days of applying for a home mortgage

• Show that you have made regular payment on credit cards and installments loans. Having a good credit score does not mean you have to pay cash all the time, In fact, if you do this, you are considered to be at a higher risk of receiving loans than someone who has managed credit cards responsibly.

• Don’t close zero-balance accounts.