Your Credit Score

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Having a good credit score is always important to consumers planning to apply for a loan or to get or keep a good deal on a credit card, but that’s especially the case in an uncertain economy. “In difficult times, lenders are pickier about the loans they make and who they lend to, and that means consumers can and should be more proactive in improving their credit score,” said Janet Kincaid, Chief of the FDIC’s Consumer Response Center.

First, what is a credit score? It’s a number calculated by a credit bureau, a lender or another company to summarize each person’s financial reliability. You also may hear a credit score referred to as a “credit rating” or as a “FICO” score (the latter a reference to a widely-used credit score produced by the Fair Isaac Corporation).

In general, when it comes to borrowing money, the higher your credit score, the more likely you are to get a loan or credit card with a low interest rate and low fees. But credit scores also can be used for other purposes, such as when you apply for a job, rent an apartment or obtain insurance.

How can you improve your credit score and get a better deal, especially in a turbulent economy?

Review your credit reports for incomplete or erroneous information and get it corrected. Credit reports, produced by credit bureaus, detail each person’s financial history (such as how you pay your bills or if you have filed for bankruptcy) and are used to develop credit scores. It’s important to review your credit reports periodically — especially in the months before you make a major purchase, such as a new home or car — to make sure that inaccurate information hasn’t lowered your credit score.

By federal law, you are entitled to one free copy of your credit report every year from each of the three nationwide credit bureaus — Equifax, Experian and TransUnion. Go to or call toll-free 1-877-322-8228 to order free credit reports.

Experts suggest that consumers spread out their annual requests — for example, to get a credit report from a different agency every four months — to monitor big changes. Also, it’s important to get reports from each agency because the information may differ.

Pay your bills on time. One or two late payments on your loans or other obligations over a long period of time may not significantly damage your credit record, but making a habit of this can count against you. Be especially careful with payments in the months before you apply for a loan. Your payment history is the largest percentage of your credit score, so make every effort to pay your bills on time.

Having a mortgage, especially one that is paid on time, can be especially beneficial in improving a credit score or maintaining a good one.

Keep your debt levels low. The higher the ratio of your debt to your income or your available credit lines, the more you will be viewed by potential lenders as a higher-risk borrower. “Just because you have a $20,000 limit on your credit card or home equity line of credit doesn’t mean you can borrow that much money without it affecting your credit score,” said Kincaid.

She added that paying off your credit cards every month is one of the best strategies for keeping a good credit score and saving money on interest at the same time.