What's Your Number?

Have you checked your credit score lately? This numerical rating can determine whether or not you’ll be approved for a loan or mortgage and what interest rate you’ll pay. Here are 5 ways to make sure it's a good one.

Have you checked your credit score lately? This numerical rating of your creditworthiness can determine whether or not you’ll be approved for a loan or mortgage and what interest rate you’ll pay—which means a good score can save you money. Some employers conduct credit checks to screen job applicants, and singles have even been known to discuss credit scores on a first date.

Many credit scoring models exist, but the most widely used is the FICO (Fair Isaac Corporation) score, which employs a scale from 300 to 850 points—the higher your number, the better. It’s based on information from the three credit reporting bureaus, Equifax, Experian and TransUnion. Scores can make a big difference, and generally speaking you want one in the 750-and-up zone. On a 36-month auto loan for $25,000, for example, someone with a strong FICO score of 760 might make a monthly payment of $730, while a next-door neighbor with a not-so-good 619 could fork over $875 a month for the same set of wheels. (Find out more about FICO, including how to order your credit scores from the three bureaus for $19.95 each, at myfico.com.)

For the best possible credit score:

1 Make sure your credit reports are accurate. ur credit reports are accurate. Mistakes on these reports can pull down your score needlessly. “Everybody is always interested in their credit score, but they forget that the basis for it is the credit report,” says Gail Cunningham of the National Foundation for Credit Counseling. The reports are intended to show whom you’ve borrowed from in the past and how you’ve repaid them. You’re entitled to receive a free credit report each year from each of the reporting bureaus.

On the reports themselves you’ll find instructions on how to dispute any errors. Beware of charges or credit accounts that seem totally unfamiliar, as they could be signs of identity theft. (Visit annualcre ditreport.com to request these reports. They don’t come with your FICO score, though you may be offered a similar-sounding score if you sign up for a “free trial period” on a monthly service for which you’ll later be billed.)

2 Pay bills on time. Pay only the mini- mum if you must, but pay promptly. “Late payments have the most serious and rapid impact on credit scores,” says Rod Griffin, director of public education for Experian. To make sure you don’t for- get, set up payment reminders. Use your own scheduling system or request alerts through your credit card company, such as text messages and email reminders as due dates approach.

3 If you are late, fess up right away. Resist the human tendency to put the embarrassing lapse in a “deal with it later” pile. Contact your credit card company immediately and explain. A grace period may apply, you may be able to pay instantly by phone, and a company rep may have the authority to make a favorable notation on your account. “Certainly ask that it not be reported to the credit bureaus and that you not be charged a late fee,” says Cunningham. “Credit card companies want to keep you as a customer, especially if you’ve been a good one.”

4 Pay down balances, but keep cards. Tempted to close every account you can pay off? Think again. While closing accounts is a good idea for people who’ve been in trouble with debt, the rest of us may wish to keep paid-up accounts open for a better “credit utilization rate”—that is, proportion of total unpaid balances to total available-credit limits. Lenders prefer this percentage to be no higher than 30; keep it lower if you can. (For example, if you have two credit cards with limits of $10,000 each, try to make sure your balances total less than $6,000.)

5 Consider an installment loan. You can also improve your score by demonstrating that you’re able to manage different types of credit. Credit cards are considered “revolving credit,” meaning that the amount charged varies each month and the balance is for an open-ended period. It’s also good to show your mastery of “installment credit,” in which you make the same regular payment until a balance is paid off. Car loans, student loans, personal loans and home mortgages are all examples of installment credit. -KRISTIN COLELLA

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