Understanding Your Credit Score

 

In most cases, consumers have to pay to see their credit scores. But a provision in the recently enacted Dodd-Frank financial reform law gives some consumers – those who are turned down for credit or who receive less-than-favorable terms – the right to receive a free credit score from the lender with an explanation of how the determination was made.

Your credit score can significantly affect your ability to obtain credit and the interest rate you pay. Even if you have excellent credit, knowing how credit scoring works may help you keep it that way.

A credit score is a three-digit number, ranging from 300 to 850, that represents the information on your credit report. The most common credit score is based on software developed by Fair Isaac Corporation (FICO). Although many factors go into your score, here are some tips that may help you maintain or potentially improve it.

* Use at least one major credit card regularly and pay your accounts on time. Setting up automatic payments may help avoid missed payments.

* If you do miss a payment, contact the lender and bring the account up to date as soon as possible.

* Don’t “max out” your available credit. If possible, use no more than 30% of your total credit limit at one time; 10% is better.

* Use older credit cards occasionally to keep them active.

* Don’t open or close multiple accounts within a short period of time

* Monitor your credit report regularly. You can order a free report annually from each of the three major consumer reporting agencies at annualcreditreport.com. However, you’ll have to pay to see your credit score.

* If you find incorrect information on your credit report, contact the agency in writing, provide copies of any corroborating documents and ask for an investigation. For more information, see the Federal Trade Commission “Fact for Consumers” at ftc.gov/bcp/edu/pubs/consumer/credit/cre34.shtm.

 

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