Financially speaking, your credit score is one of the most important things out there. Your credit score is what can make or break your chance of getting approved for a house loan, a loan for a new car or a credit card offer you’ve had your eye on.

Whenever your traveling, you should try to leave home in a good financial standing, but another reason you’re credit score is important is because if you’re interested in applying for travel credit cards that have signup bonuses that are enough to pay for your entire airfare, you’re going to need a good credit score.

In order to have a high credit score, you have to build credit and this it means you basically have to use it. One of the easiest ways to do this is to get and use a credit card for everyday purchases and ALWAYS paying off your balance in full when it’s due.

What is a credit score?

There are different factors that make up your score: length of credit history, accounts you have a balance on, new credit, payment history and the type of credit you have. The industry standard is the FICO score and since it’s a profit driven company that calculates it, no one really knows the weight of each category that makes up your FICO score. It’s a secret formula (seriously) that calculates your score between a range of 300 to 850 and the higher your score, the better. Usually, a score above 700 is considered a great score and anything after 750 is exceptional.

Credit Score Grading Scale

• 750 – 850: A or Excellent

• 700 – 749: B or Good

• 630 – 699: C or Average

• 580 – 629: D or Below Average

• 300 – 529: F or Bad

Why does your credit score matter?

Your credit score matters for a few reasons. Basically if you ever want to apply for a loan, credit or want low interest on certain purchases, you need to have a good credit score. It doesn’t matter if you have thousands of dollars saved up under your mattress because if you don’t have a good credit score you’re not going to be able to get approved for a loan on a house or be a approved for the credit card you want. Same goes with having a low credit score because of having debt or not making payments on time. If you’re not in good credit standing, it’s going to be hard to get approved for different lines of credit.

It’s important to always know your credit score and monitor it. I know there is a lot of confusion about checking your credit score and the score dropping as a result of checking it. Your credit score will only drop a few points if a credit issuer runs a hard pull on your credit when you’re applying for a loan or line of credit. Soft pulls do not impact your credit score, so you don’t have to worry about these as much.

For example, when you want to buy a car and get a loan, the dealer will pull your credit score through a credit bureau (Experian, Transunion or Equifax) and that will drop your score a few points. That process is called a hard inquiry. It take about a 6 months for the points to come back up, but it’s usually only up to 10 points that are lost.

To monitor and check your own credit score, I recommend using CreditKarma.com. It’s free, easy to use and doesn’t affect your credit score at all because it’s considered a soft inquiry. I personally use this to monitor my own score and highly recommend it.

Ok, so how do you improve your credit?

1. Clear Your Debt

A month after you pay off your debt, you’re likely to see your credit score take a big leap forward. So if you have anything in collections that you owe, call the agency that’s trying to collect from you and try to negotiate the amount that you owe. For example, if you owe $1,000 to a cell phone company, most of that is probably incurred late fees, interest and a cancellation fee, but the collection agency really just wants to get what you originally owe. Ask them, if there’s anyway to bring down the amount you owe and that $1,000 can easily turn into $500.

2. Apply for Credit

If you have limited credit history getting a new credit card will likely increase your credit score. However, you’re going to have to start off small with cards that are geared towards individuals with limited credit history or lower credit. The Discover it and Chase Freedom are great credit cards to start off with because there is no annual fee, they tend to be easier to get approved for and you earn rewards for making purchases with the card. You shouldn’t apply for premier rewards cards that are out of your league because you don’t want several hard inquiries to show up on your credit score. An ideal score to begin applying for the more desirable cards is once your credit score is at least 710.

3. Don’t Carry a Balance

If you’re going to make a purchase on your credit card, make sure to pay your balance off in full at the end of each billing cycle. Just because your given credit, doesn’t mean you should max out the card either. The less utilized the card is as the new cycle begins, the more your score will increase. Keeping your utilization at 30% is ideal and you can monitor that on Credit Karma.

4. Never Miss a Payment

Make it a habit of paying all your bills on time: credit card, cellphone, car payments and student loans. If you tend to forget to pay them on time, then set calender reminders on your phone or email so you stop missing them. Also consider setting up auto payments that are linked to your bank or credit card account so it’s automatically deducted every month without much effort on your end.

5. Keep Older Accounts Open

If you already have a credit card account, keep it open especially if it doesn’t have an annual fee. By having an older credit card that you use from time to time it strengthens your credit history and will increase your score. Your credit history takes into account on-time payments and balances so the better your history looks, the better it influences your score.