Your credit score (also known as a FICO score) is a number that tells employers, landlords, and banks how good you are at handling money.
Have a score over 800? That probably means you pay your bills on time, don't go over the top with debt, and pay what you owe. Have a score of 500 or less? You're going to have lenders side-eyeing you and politely (or not-so-politely) not returning your calls.
Credit scores have a big impact on your life. With a bad score, you might have trouble
- getting a good interest rate.
- landing an apartment.
- getting some types of jobs.
- getting loans and credit cards.
Where Did This Number Come From
Credit bureaus come up with this number by using special software that analyzes the information in your credit report. Your score will depend on a bunch of stuff, such as
- how often you pay your bills and accounts on time.
- how much you owe.
- how long you've been borrowing or paying bills (your credit history).
- new types of credit you've gotten.
- what types of credit you have (revolving loans or installment accounts).
Not all this stuff is given equal weight. In general, the amount you owe and your history of repaying accounts on time will count the most.
What's My Number, Bae?
Is your credit score skipping along with a spring it its step or does it need CPR and maybe a defibrillator? Your score doesn't just pop up on your bills or your forehead. To find out how your credit is doing, you're going to have to contact the credit bureaus.
The government lets you get one free copy of your credit reports each year so you can check to see how your financial health is doing. You can order your credit report online (be careful; there are a lot of fakies out there) or you can order your credit reports (and fix mistakes on your reports) by contacting the three major credit bureaus directly:
Each credit bureau gets slightly different information and tallies up your credit score slightly differently, so it pays to get your scores and reports from all three.
When Your Credit Score Needs First Aid
Maybe your credit score is in great shape and ready to run a financial marathon. Or maybe it looks like it's had a few cardiac episodes, a stroke, and maybe been in a six-car pileup on the financial highway.
No matter how mangled your score is now, you can make it gorgeous again. There's lots of ways to improve your score:
- Get a copy of your credit reports and report any mistakes you see and any possible instances of identity theft.
- Pay down your credit cards and lines of credit to zero—but keep them open (having accounts for a long time but having them paid down helps you more than closing your accounts).
- Start paying your bills on time, even if it means setting up automatic payments.
- Avoid applying for lots of loans at once.
- Give yourself some time with your new no-debt and bill-paying habits to give your score a chance to improve.
A financial hangover takes time for recovery. But pretty soon your credit score will be looking like its bright-eyed bushy-tailed self again.