When you first started, building your credit seemed like a daunting task, but following these simple steps, you will soon reach a higher credit score.

In order to start your credit building journey, you should first understand how to calculate your credit score. Your fico score is calculated according to the formula of fair isaac. There are five main components that are reported to your credit reporting agency by your bank and other lenders.

With this in mind, we've summarized these five sections and provided you with a simple tip to help you maximize the credit score for that section.

1) Payment history (35%)

The biggest part of your credit score depends only on whether you paid the expired amount on time.

Tip 1: Pay your bills on time. All your bills. In addition to credit cards and other loans, unpaid rent, utility bills, and hospital fees will eventually enter your credit history and leave a large mark.

2) Arrears (30%)

The next biggest component considers which part of the available credit you typically use, which is your utilization. This ratio is reported in each individual credit account and the overall utilization of all your credit accounts.

Tip 2: Control the credit card balance of each card below 30% of the credit limit. If you tend to spend more than 30% of the credit line, you may want to pay the balance before the end of the billing cycle, or ask for a credit line. Note: Even if you pay your balance in full every month, your bank will usually report your balance on your statement.

3) Credit record length (15%)

This component will consider the age of the oldest account and the average age of all accounts. In general, a longer credit history will increase your fico score.

Tip 3: Don't close your oldest credit card account. Even if you don't use it, an old credit card account can help you build a long-term credit history (in addition to lowering your utilization as described above).

4) Type of letter of credit in use (10%)

Your fico score also takes into account the combination of credit accounts you have, including credit cards, personal loans, mortgages, installment loans, and more. However, you don't have to open one for each account. As long as your credit history has enough added value, this part will not be an important part of your score. The traditional information based on the rating.

Tip 4: Buy a credit card (and use it responsibly). If you haven't already, open a credit card account. This is the easiest way to generate a credit history. If you already have a credit card account, don't worry about applying for other types of credit card accounts, as the added revenue may be minimal.

5) New credit (10%)

This is one of the most confusing parts, because applying for a new credit card or loan may temporarily freeze your credit – but you need a credit account to set up a history, and in some cases, you have more credit. Increase your utilization. In general, this section attempts to capture high-risk borrowers that may over-expand, rather than the one-time credit card or car loan you are considering.

Tip 5: Don't apply for multiple accounts in a short time—especially if your credit history is short. Opening a new account is unlikely to have a meaningful impact, but if you have a short credit history and try to open multiple accounts in a row, this may indicate a higher risk for future lenders and damage your score.