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Your credit score plays a significant role in your ability to reach your financial goals.

When you apply for a loan, a cellphone, a rental unit or any number of other activities, lenders and potential creditors will look at your credit score to gauge your financial stability and your risk of defaulting on a financial responsibility. The better your score is, the more options will be available to you, including higher chances of getting approved for a loan and better loan terms.

Here’s a look at what financial activities are affecting your credit, as well as some Freddie Mac-approved tips for improving your score.

How do credit scores work? There are many different types of credit scores, but the FICO score is the one used by most lenders. Scores range from 300 to 850 points. According to FICO itself, scores are based on these five factors:

  1. Payment history: Payment history accounts for 35% of your credit score and reflects how consistently you’ve made on-time payments.
  2. Amount owed: Worth 30% of your score is your amount of outstanding debt. The lower this figure is, the higher your credit score.
  3. Length of credit history: Your credit history, which accounts for 15% of your credit score, is based on the length of time you’ve had credit accounts open in your name. A longer credit history can help your score.
  4. New credit you apply for: Credit inquiries are worth 10% of your credit score. Each time you apply for credit, your score goes down — with one exception: when you’re shopping for a mortgage, student or auto loan, credit scoring models only count one inquiry if your comparison shopping is done within a 14- to 45-day period. Note that inquiries will affect your credit even if you’re denied or ultimately decide against the loan or credit card. Each inquiry affects most scores by 5 points or fewer and can stay on your report for up to 24 months.
  5. Types of credit you use: The final 10% of your score is determined by whether you can responsibly use different types of credit, such as installment and revolving debt.

You can get your free credit report from the three main credit bureaus once every 12 months at www.annualcreditreport.com or by calling 877-322-8228.

What behaviors are good for credit? Your credit score will naturally go up and down as you go about your daily life. However, these actions are associated with good credit:

  • Making payments on time.
  • Keeping your debt load manageable.
  • Using as little of your credit limit as possible.
  • Paying the full amount due, or at least more than the minimum amount due.
  • Reviewing credit reports annually.
  • Not shopping for too much credit.

How can you improve your score? If your current credit score has been damaged or is otherwise low, set a goal to improve it. In addition to smart credit management, consider taking the following steps:

  • Enroll in a free financial education class, such as Freddie Mac CreditSmart, to acquire the building blocks you need to improve your finances and your credit.
  • Build credit through rent payments. Unfortunately, rent payments are not automatically factored into your credit score. That means, for many people, their largest monthly expense doesn’t help them build credit. Talk to your landlord about reporting your payments to the three major credit bureaus. If they’re not able to do so, you can do it yourself through a rent reporting service. To learn more, visit myhome.freddiemac.com/renting/how-get-your-rent-reported-credit-bureaus.

Good credit expands horizons. No matter where you are in your financial journey, you can take steps to improve your credit and live the life you want.