There are few situations that are as overwhelming as debt, and sometimes payments can seem impossible. Many times, people get so caught up in worrying about making payments that they forget to even look at what the debt is doing to their credit score. When you’re struggling just to make payments does your credit score really matter?

Well first off let’s look at what credit ratings are used for. Loans are the most common thing people think of when they hear credit score. If you ever need to borrow money you can be sure that lenders will check your credit history. This not only helps determines if they will lend you the money, but also helps determine what your interest rates will be. Some people suggest getting loans with low interest rates to help pay off credit card debt. However, if you have a low credit score, then you will be considered a higher risk to the bank and they will compensate by increasing your interest rate. Remember that generally, the higher your credit score, the lower your interest rate.

Other instances when your credit score is important would be buying a car, mortgaging your home, and maybe even getting a job. Yes, it’s true that some employers will check your credit history to see how you manage your finances. Whether trying to consolidate your credit card debt or just trying to maintain a good score, let us give you a better idea of how you can improve your credit rating.

Credit Score Breakdown

First, take a look at how your credit score is determined. Many people think that credit scores and credit reports are the same thing. In actuality your credit score is based on your credit report. The report is basically a history of your financial actions. It includes current credit accounts, your payment history, how you’ve used your credit, and if you’ve ever filed for bankruptcy. From these reports compiled by the three national credit bureaus, the Fair Isaac Corporation will determine what your credit scores are. Although FICO does not reveal exactly how they calculate scores, they have revealed some important factors that are included in their formula and their approximate contribution:

• 35% is based on your payment history. This includes how quickly bills are paid, how many bills are paid late, if any bills were sent for collections, or if you’ve ever filed bankruptcy.
• 30% is based on your outstanding debt. How much do you owe on car loans, home loans, or other loans? Do you have more than one credit card?
• 15% is based on how long you’ve had established credit. Lenders like to be able to see a few years of credit history.
• 10% is based on new credit. If you’ve recently opened a new credit account that will reflect poorly on your score.
• 10% is based on type of credit. If you’ve had several different types of credit accounts that will look better for you score. Just credit card debt does not look good.

Now that you have a better idea of what makes up your credit score let’s take a look at some ways that you can improve your credit score, especially if you’re trying to consolidate credit card debt.

Improving Credit Score

Many people try to put all of their credit cards into one account that has a lower interest rate. You need to be careful when doing this. If you’re trying to consolidate credit card debt and you want to transfer balances here are a few things you should know.

1. Opening a new credit card account will lower your credit score a bit. However, if it can help you pay off your debts sooner than that may be ok in the end.
2. If you’re going to transfer your credit card debt to an account with lower interest make sure the credit limit isn’t too low. If it looks like you’re about to max out your credit card then that can negatively affect your score as well.
3. Look at transfer fees. Some companies will actually charge the balance transfer as a fee, and that can really build up. See if there is a cap on how much they can charge you.
4. Don’t close your old account. It doesn’t make a lot of sense, but it can negatively affect your old account if you close it.

Some final tips for raising your credit rating are to make sure that you make your payments on time. Also try to get all your credits to 25% of the credit limit. Finally limit the number of accounts you open, and don’t be afraid to get help in consolidating your credit card debt. It may negatively impact your score in the short run, but will help you out in the future.