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When you apply for a credit card, there are typically 5 key factors that the credit bureau will take into account when they determine your credit rating. To improve your credit rating, you can take advantage of the 5 methods described here.

What Factors are Taken into Account to Determine my Credit Rating?

• 35% - Payment History: How reliable past repayments have been
• 30% - Total Amounts Owed: Your ratio of Debt:Credit. The less debt the better.
• 15% - Length of Credit History: The length of time your lines of credit have been open.
• 10% - New Credit: How frequently you apply for new lines of credit.
• 10% - Type of Credit in use: May influence approval of the credit you’re applying for.

What can I do to Counter these Factors?

The first step to improve or repair your credit rating is to make repayments on time. This shows the bank that you are a responsible client worthy of a good credit rating. They are looking for people who they will make interest off, but they won’t have to chase for repayments.

The second thing they will look at is your Debt:Credit ratio. If you have $2500 owing on a $5000 limit card, it looks much worse than $2500 owing on a $5000 limit card. The first would have a ratio of 1:2, or 50%, against the much lower 1:4 ratio, or 25% on the second card.

Thirdly is the length of your credit history. A client who has consistently made repayments on time for a length of 3 years is going to look much more impressive than the same reliability over 3 months. This works the same in reverse; a client who has had a poor repayment history for the length of 3 years is going to look much worse in comparison to someone who has had a poor repayment history for only 3 months.

Applying for new credit too often is also a sign of financial weakness to the lender. If you take out new credit frequently it will show that you are relying on borrowed money to make a living. This will make the bank doubt your ability to repay them in the long run. Lastly, the types of credit that you have handled will have a different impact on your credit rating.

Something that takes more discipline and responsibility, for example a large mortgage or car loan, will have more weight than the comparatively simple task of managing a student credit card as a teenager.

To sum up:

• Make repayments punctually.
• Reduce your debt:credit ratio by transferring your current balance to a credit card with a higher limit.
• Try to keep accounts open as long as possible to increase the length of your credit history.
• Try to minimize the frequency of applying for new credit to only when its truly necessary.
• Determine which of your credit lines will have the greatest impact on your credit rating, and focus on keeping those well managed.

Mike Jarocki is financial editor of Australian credit cards specialist, Credit Cards Zero. Visit Credit Cards Zero for more information and a comparison of Australia's top zero rate and fee card offers.