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Credit score is a three digit number that has an impact on just about every major financial decision you make. Credit scores can affect your credit card interest rates, how much you pay on a car loan or mortgage, and even whether you get a job. Each time you try to get a loan or a line of credit, the lender will look at your credit score rating to determine your risk level and decide what interest rates and terms to offer you on your credit card, auto loan, mortgage, and whether you should get approved for apartment rental or a cell phone.

There are three primary credit report bureaus in the US today: Equifax Credit Information Services, Inc., Experian, and Trans Union. They know almost everything about your credit history, including how much you owe, what accounts you have, what is your credit limit, and whether or not you pay your bills on time. Based on that information, the credit bureaus calculate your credit score, also called FICO score, using a formula developed by Fair Isaac Company.

The highest possible score one can attain is 850, according to FICO — Fair Issac Corp. — which created the credit score formula used by financial institutions, lenders and other businesses. The score is based on an individual’s’ spending and bill-paying habits as well as their overall debt load.

While a credit score can range from 300 to 850, your goal should be to get your score as close to the 720-850 range as possible.

This will mean thousands of dollars saved on every major financial transaction every year!

How to make sure you have a good credit score

1. Pay your bills in full, on time, every month. This will help you avoid carrying balances on your credit cards and will raise your credit score.

2. Make sure your bills are always paid on time. When your bill has a payment date on it, that’s the date the payment does actually need to be processed. So, it’s NOT the mailing date. If you are planning to mail in your bills, allow at least 7-10 days for the bill to get to its destination.

3. Keep in mind that inquiries can lower your credit score up to 5 points, so limit the number of credit inquiries. And if you are thinking about getting a loan soon, try to make all applications within two weeks period. That way your credit score will only get hit once.

4. Pay your bills online. That’s the faster and better way to pay your bills – where you can pay the day your bill is due.

5. Try not to carry a balance on your credit cards. If you do carry a balance, try to keep ihe amount of the loan low relative to the maximum credit limit. A good rule of thumb is to keep your balance below 30% of your maximum credit limit.  If you carry a higher balance than that, creditors will think that you cannot manage your money.

To reduce your debt-to-credit ratio, you can try to increase your credit limits on your existing credit cards, or open some new accounts.

If you only use 10% to 30% of the credit you have available on a high limit account, your credit score will rise significantly. However, this will only work if you keep the balances on these accounts low. Also, you should not make too many inquiries for credit at the same time, as this may lower your score.

6. Get a copy of your credit report (you can get it for free from any of the credit reporting agencies) and examine the data for errors and negative items.

If there are any negative items that are over seven years old, they can be disputed and most likely removed (except for a bankruptcy, which stays in the file for ten years from the date of discharge). There may be accounts showing missed payments when in fact, they never were. There could be debts of your former spouse, accounts which aren’t yours or civil judgments that aren’t yours. It is estimated that over 60% of credit reports contain some inaccuracies or errors.

7. Dispute all negative items on your credit report by writing a letter and sending it to the credit bureau or the creditor via registered or certified mail.

The Fair Credit Reporting Act gives borrowers the right to review and dispute the items on their credit reports. Credit agencies are required by law to prove the accuracy of the information within 30 days. If they are not able to provide the proof, the item must be deleted. During that time that information cannot be used in the calculation of your score.

8. If you have a bad or poor credit score, you need to change your spending habits and improve your money management skills, and do not rely on someone else to fix your problems for you.

Especially be careful and do not trust the claims made by various credit repair companies and their ads. Your bad credit history cannot be wiped out from your file overnight. And do not even consider for a moment changing your identity in order to start with a clean record, as some of these companies may propose. Falsifying your financial and personal records is a federal offense, for which you can be convicted and sent to jail.