5 Tips for Managing Credit and Boosting Your Score

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Credit is complicated. For many, understanding how a credit score is calculated and what the number actually means is often a mystery. But it's critically important and can open doors to many things: a home or auto loan, a credit card or even a job.

Bank of America has recently partnered with nonprofit education leader Khan Academy to create BetterMoneyHabits.com, a free online resource that offers easily digestible information to help people achieve their financial goals. We've received thousands of requests from users asking us for certain types of content. As credit is one of the topics least understood and most asked-for, we wanted to share a few helpful hints on how to crack the credit score code.

Know the Score and How It's Tallied

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The FICO® Score is the most widely used credit bureau score in the U.S. and ranks individuals on a scale of 300 to 850. According to myfico.com, a score of 680 or higher would generally be considered good, and the national average hovers around 692. The two most important factors affecting your credit score are payment history - the presence or absence of negative information such as a late payment - and debt burden, which is based on things such as your personal debt-to-limit ratio and the number of accounts with outstanding balances in your name. Other factors include the length of credit history and credit utilization.

Pay Your Bills On Time

Your payment history is very important to your credit, making up 35 percent of your overall score. So, the best thing you can do to achieve a high score is to pay your bills on time every month, including loans, utilities, credit cards and mortgage payments. Timely bill payment shows potential lenders that you're financially responsible. Setting payment reminders on your accounts can be very helpful so you don't forget to make a payment on time.

Pay your credit card balance in full to avoid additional interest, but if you're unable to do that, pay at least the minimum amount to keep the account active. Keep in mind, however, that credit card balances that remain after the grace period accrue interest and add to your overall debt.