A high credit score can be one of your best friends, while a low one can dog your best efforts to get ahead. By knowing exactly what goes into your credit score, youll be able to take the right steps to improve it.

New York, New York (PRWEB) October 4, 2005 -- Your credit score matters--a lot. A higher score qualify you for better loan terms, which translate into serious savings over time on your mortgage, car and credit card payments.

The tricky thing is that sometimes making what would seem to be smart debt management moves actually can lower your credit score. For example, consolidating all your credit card debt onto one card can actually lower your score because it makes you look like youve tapped out all your available credit. Likewise, closing out old accounts can shorten the length of your credit history, also making you seem less credit worthy.

Two stories from the Armchair Millionaire community illustrate how important it is to move carefully as you go about improving your credit score:

I have cards that I never use but have kept open. You shouldn't close down your old credit accounts since a portion of your score is determined by how long you've had credit. --mdonalds

We used to have no credit cards--bought everything cash except for a mortgage. We applied for a car loan and found our credit score wasn't as strong as it could have been (although we did get the car, no problem). We got a credit card, but don't use it and now our credit score is better even with the car loan. So the morale of the story is: Don't use all of the credit available to you to show that you have discipline and restraint. --YJ

Your credit score, which is formulated using key information from your credit report, is a three-digit number that can range from 300 to 850 (the average is 723, according to MyFico.com). To improve your credit score, you need to know exactly how its calculated. My guide shows you the way.

The Armchair Millionaires Guide to How Credit Is Scored

Payment history. This is the most important category, accounting for 35 percent of your credit score. It includes your payment information on all your different types of credit accounts, whether theres a public record of bankruptcy, liens, wage attachments or the like, the amounts of any past due accounts and how long past due those accounts are.

Amounts owed. This accounts for 30 percent of your total credit score. It assesses the amount you owe and how many accounts you have with balances. It also looks at how much youve used on your available lines of credit (such as home equity lines of credit) and how much you still owe on installment loans.

Length of credit history. Data in this category accounts for 15 percent of your credit score. It basically includes the amount of time since youve opened your various accounts and the amount of time since theres been activity in those accounts.

New credit. This category makes up 10 percent of your credit score and includes how many new accounts you have, how long it's been since you opened an account, and how many inquiries have been made on your credit report in the recent past.

Types of credit used. This also makes up 10 percent of your credit score. It looks at the kinds of credit you use, such as credit cards, a mortgage and car loan, as well as the total number of accounts you have.

THE BOTTOM LINE: A high credit score can be one of your best friends, while a low one can dog your best efforts to get ahead. By knowing exactly what goes into your credit score, youll be able to take the right steps to improve it.

THE ARMCHAIR MILLIONAIRE WEEKLY SURVEY: What would you do if you suddenly received $10,000? Log on to www.armchairmillionaire.com and let us know.

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Lewis Schiff founded the Armchair Millionaire Web site in 1997. His first book, The Armchair Millionaire, was published in 2001. Schiff's newest report, "How to Know When You Are Rich," is now available at www.armchairmillionaire.com.

CONTACT INFORMATION:
Lewis Schiff
Armchair Millionaire
877-833-2823
http://www.armchairmillionaire.com

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