In our first post, we've provided you with 5 simple tips to improve your credit score and an overview of how to calculate your credit score. In this series of posts, we will delve into your FICO credit score and provide you with the knowledge to design a specific credit status plan.

Good or bad, your FICO credit score is an important part of your financial situation. The loan decisions (and interest rates) of many lenders are based on your FICO score. This means that if you want to buy a house, you should now start thinking about how to maximize your credit score. Even if you are confident of getting approval, a lower score can save you tens of thousands of dollars in extra interest during the loan process.

There are three credit agencies that have the authority to calculate your FICO credit scores – Experian, Equifax and TransUnion. Although everyone uses similar models, they may have different data, which can lead to different scores. You need these agencies to have enough credit history to calculate any FICO score, which means you must have at least one account open for 6 months or longer, and some activities in the past 6 months.

Part 1: Payment history (35%)

The first and most important thing a potential lender wants to know is whether you paid your past credit account on time. This part of the credit score calculation accounts for more than one-third of the FICO total score, but this is the easiest part to correct. In general, paying bills on time is the best way to improve your credit score.

If you do delay payments, the impact on your credit score will depend on the extent of your payment delay, the amount you owe, the time of occurrence, and the number of occurrences. Older projects and smaller amounts will be less than newer projects and larger amounts. A good overall credit status can exceed one or two overdue payments, but it is in your best interest to avoid any late payment occurring in the first place. If you have accidentally missed a payment, please pay your balance as soon as possible and contact your bank – they may ignore delayed payments from your credit report.

The types of accounts that typically report your payment history include credit cards, retail accounts (such as department store cards), installment loans, and mortgages. However, if you do not pay bills regularly, such as utilities, hospitals or even cable TV bills, you may find a negative impact on your credit score.

In addition, other negative factors in this part of the credit report may come from bankruptcy, foreclosure, litigation, wage seizures, liens or court decisions. In fact, announcing personal bankruptcy (Chapters 7 and 13) can have a negative impact on your credit history for up to 10 years!

While paying bills on time does not guarantee a perfect credit score, it is the first and most effective step to improve and maintain credit.