Credit Score: Life's Most Important Grade

A credit score, financial shorthand for your creditworthiness, is based on the information in your credit report. You get points added and deducted for things like payment history, credit history, loans outstanding and so on. “It’s the only way lenders can make an effective decision,” says John Ulzheimer, president of consumer education for How can you improve yours? It comes down to these five key things:

Payment history
A whopping 35 percent of your credit score is determined by your ability to get those bill payments out the door on time. Have a less-than-stellar track record? Forget about the past and make a new bill-paying resolution. When applying for credit, recent late payments are more important than those going back a few years.

Amounts owed
Of almost equal importance to your payment history is how much you owe, which accounts for 30 percent of your score. No lender wants to see you maxing out your credit cards. So keep your so-called “credit utilization” below 10 percent per credit card. Making a big purchase? Use multiple cards to keep below the 10 percent range.

Length of credit history
The old folks get more points here. Lenders want to give loans to experienced borrowers, and 15 percent of the credit score is determined by the length of your credit history.

New credit
Ten percent of the score is assigned to newly opened credit. Lenders aren’t too excited about giving you money when you’ve just opened your 10th credit card. Yes, you need to demonstrate how well you use credit in order to get more credit, but open only a few accounts and pay them off regularly. And try not to succumb to the temptation of those credit cards offered during checkout at those big-box stores. Unless you plan to pay off the balance immediately, that 10 percent savings will go the other way very quickly.

Types of credit
Don’t go out and buy a car just to qualify for a mortgage, but bear in mind it may help demonstrate that you’re able to handle a diversified credit mix. Credit agencies want to know that you can manage different kinds of debt, and they reserve the final 10 percent of your credit score for this type of juggling.

Fast Facts
1. A 30-year fixed-rate mortgage of $300,000 will cost you $14,000 less over the life of the loan if your score is 760 or above.

2. You can get your credit report free of charge by going to

3. Credit agencies are legally required to fix mistakes on your report.

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