I get asked this question a lot. The credit bureaus (and a lot of the so-called experts) will tell you that you just have to sit back and wait 7 years for bad credit to fall off your credit report.

Sorry, but this is not true.

The key is to know which factors influence your numbers so you can make better financial decisions:

1. Your payment history (approximately 35% of your score)
Have you paid your credit card bills on time? If not, then late payments, collection accounts, and other negative items can lower your credit score. So pay on time as often as possible!

2. How much you owe (approximately 30% of your score)
FICO scores look at the amounts you owe on all of your accounts. Also factored in are the number of accounts with balances, and how much of your available credit you are using. The more you owe compared to your credit limit, the lower your score will be.

3. Length of your credit history (approximately 15% of your score)
The longer you've had credit the better. So, closing older accounts is not always a good idea. It is still possible to get a good score in a short period of time - if you've been responsible (by paying on time and not maxing out all of your credit).

4. New credit (approximately 10% of your score)
If you have recently applied for or opened any new credit accounts, this will have an affect on your credit score. So don't keep applying for credit every time you go shopping. And if you are making a big purchase, do your applications in a short period of time, and don't drag out your search for the best rate over a long period of time.

5. Other factors (approximately 10% of your score)
Other factors also can influence your score. For example, having different types of credit on your report (such as credit cards, installment loans such as a mortgage or auto loan, and personal lines of credit) is normal for people with longer credit histories and can slightly improve your score.

How can you improve your credit score?

First of all, credit scores are not always perfect! Since your credit scoring relies on information found in your credit report, it may not be entirely accurate (since many credit reports contain errors). So, it's a good idea to get a copy of your credit report once a year, look it over, and make sure it is accurate.

And if you are planning a big purchase, do this a few months ahead of time so you have enough time to get the errors corrected.

P.S. Thanks to Couple Money for including us in their recent blog carnival.