Thanks to the subprime mess, and the huge losses in the housing market, banks have been more reluctant to lend money. Although I think the credit crunch is greatly exaggerated, if you want to get a loan, you need to be able to show that you are credit-worthy. One of the main things you can do to help your cause, is to take care of your FICO score. Here are some things you can do (and avoid doing) to rack up points.

Things to do:

  • Pay your bills on time. Your track record for making timely payments accounts for about 1/3 of your FICO score.
  • If you are having trouble making ends meet, contact your creditors.
  • Use different types of credit. Having a blend of revolving credit, like credit cards, and installment loans can help boost your score.
  • Once a year you can get a free credit report from www.annualcreditreport.com. Here you can check for any mistakes and dispute them.

Things not to do:

  • Don’t max out your credit. Keep your balances low relative to your credit limit.
  • Confine loan shopping to a few weeks so that credit inquiries won’t weigh on your score.
  • Don’t open credit card accounts that you don’t need. Your FICO score usually drops a few points for every new account opened.
  • Don’t close old credit card accounts with a good payment history. If you lower your total available credit, it can have a negative impact on your score.
  • Don’t open multiple accounts too rapidly. New accounts will lower your average account age, which will have a larger effect on your score if you don’t have a lot of other credit information. Also, rapid account buildup can look risky if you are a new credit user.

According to myFICO.com, a FICO score is calculated based on your rating in 5 categories. Payment history accounts for 35%, amounts owed 30%, length of credit history 15%, new credit 10%, and types of credit used 10%.

The median FICO score in the U.S. is 723. If you follow the tips above and use credit wisely, it can save you a lot of money and stress in the future.