Do you want to buy a car, a home, a boat or any other large purchase? Well, most people decide to use a loan for each of the above. You go to a bank and talk to a representative, sign some papers and Presto! You have a loan. Well, not exactly. Before any lender will give you money, they look at your credit worthiness. This will determine how much risk there is in lending you money by analyzing the likelihood you will pay your debt. If you are high risk, your interest rates will also be high. What some people do not realize is what makes them high or low risk.

There are several credit bureaus that analyze your credit worthiness, but the standard one is from the Fair Isaac Corporation commonly known as a FICO score. The score range is from 300 to 850 and indicates your likelihood of being 90 days late on a loan obligation. The higher your score is the lower your risk and the better your interest rates. Currently if your score is at 620, your interest rate could be near 8% compared to an interest rate of 6.5% for a credit score of 720. A rate that high could cost you tens of thousands of dollars or more over the length of the loan. By increasing your FICO score, you can save tens to hundreds of thousands of dollars in unnecessary interest.

To improve your score, you need to know a few basics. There are five factors that make up a FICO score: past delinquencies, revolving debt ratio, average age of credit file, mix of credit and inquiries. Make sure you have a substantial base and mix of credit. Sharing your debt over two credit cards can help lower your debt ratio and can show that you have more than one source of credit. Car loans and mortgage accounts can fulfill the healthy mix requirement.

The best advice anyone can give on boosting your credit and stabilizing your financial future is pay all bills (credit cards, mortgages, car loans, etc.) on time or before the due date to ensure that you will not have any additional late payments on your record. After a few months you can see a difference in your score. Talk to your creditors about past delinquencies and what you can do to remove them and do not forget to pay collectors if needed. If you find that repairing your credit is too difficult a task for just one person, hiring a professional can often times be useful and effective. No matter how bad your credit currently is, there is always a financial solution waiting for you.