Your Credit Score

Also known as your FICO score, your credit score is part of a system used to award you points based on certain buying behaviors. To have a score, you must have one open account (e.g. your bank account, car loan or cell phone) active for at least 6 months.

Three major credit reporting agencies — Equifax, Experian and TransUnion — keep track of your credit standing and present your FICO scores to potential lenders. Lenders look at this score to qualify and approve you when you apply for credit of any kind.

Your credit report will show how many times you've applied for credit, when and if you've been turned down, if you've made your payments on time, how much you pay and your employment history, among other facts.

Federal law entitles you to 1 free credit report every 12 months from each of the 3 national credit reporting companies. It's a good idea to know your score before you attempt to make a major purchase such as a car or home.

Building a Good Credit Score

A good credit score will make it easy to obtain loans and usually translates into low interest rates. If you follow these guidelines, you'll be able to build and maintain good credit:

If you spend, pay on time. One of the quickest ways to get in trouble is to pay your bills late because most lenders will charge expensive late fees. Also, payments 30 days past the due date are reported to credit reporting agencies

Make more than the minimum payment. One of the quickest ways to get in trouble is to pay your bills late because most lenders will charge expensive late fees. Also, payments 30 days past the due date are reported to credit reporting agencies.

Keep a card for emergencies. If you only pay minimum payments, you could end up paying more than twice what you spent initially after factoring in fees and high interest rates.

Face your debt. List your debts, the amount you owe and the interest rate for each card. Pay off the card with the highest interest rate first. Continue making minimum payments or more on all of your other cards, but make sure to pay at least double the minimum — if not more — on the high interest rate card.