Personal Finance > Five Tips
All about your credit score
5 Tips: Understanding your credit score
May 10, 2004: 2:36 PM EDT
By Gerri Willis, CNN/Money contributing columnist

NEW YORK (CNN/Money) - Interest rates are poised to move higher and if you're carrying a lot of debt you could be facing a problem.

There's even more risk for those with any variable rate debt, whether it be a home equity line of credit or variable rate credit card. Now's the time to check out your credit report and see how you rank. As rates go up, your debt will most likely grow.

So, what does a credit score mean to you? Here are today's five tips.

1. Understand what a credit score actually is.

Four in ten Americans know "nothing at all" or "not very much" about their credit scores, according to a recent survey by TrueCredit is a division of the credit reporting agency, TransUnion.

Among the most disturbing findings of the study was that in the 18- to 24-year-old age group, 34 percent admitted to knowing nothing at all. This is problematic since so many college students are getting credit, but have no idea how it works. Meanwhile, 35- to 49-year-olds are among the most knowledgeable, with 41.3 percent saying they know "a lot."

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CNNfn's Gerri Willis shares five tips on what you need to know about your credit score.

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So, what is a credit score? It is a way for lenders to evaluate a potential borrower's ability to repay a loan. It is a mathematical equation that puts together all types of information from your credit history and determines your level of future risk in paying back loans.

But in the end, most of your score boils down to just how conscientious you are in paying your bills regularly and on time, particularly your credit cards and mortgages.

The higher your score, the better your chances of getting the best interest rate available, while a low score could get you a higher rate or your application flat out rejected.

Most consumers score between a 300 and 850. Credit scores in the range of 620-650 indicate basically good credit. A score above 680 will most likely qualify you for the best rate your lender has to offer.

As far as what's in a credit report, it starts with the basics such as your birth date, Social Security number, and address. It then details your relationships with banks, credit card companies, even with student loan lenders.

Among the issues they may look at are how much you owe, when you opened each account and your payment history.

2. Realize its importance.

The importance of credit scores has been spreading beyond your ability to pay down a mortgage. The score influences your ability to get credit cards, buy a car, even rent an apartment.

What's more, insurance companies are now checking out your score when determining the premium you qualify for. There's even a growing trend of employers using credit reports in background checks of potential employees.

They offer insight into the applicant's reliability, particularly for those applying for financial or key retail positions. Keep in mind, it's not necessarily how much credit you have, but how you handle it that will ultimately affect your history.

Bottom line: you want to have credit. Generally lenders only want to deal with people with some type of record. The challenge is maintaining it so it works in your favor down the line.

3. Research your report.

The more in the know you are about your credit history, the easier it will be for you to defend yourself if a problem arises or when you are shopping around for the best interest rate possible on a loan.

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Check out your credit history at the three major credit bureaus, Experian, Equifax and TransUnion. You can find them all on the web and they all have toll free numbers.

Experian's is or 1-888-397-3742. Equifax is or 1-800-685-1111 and you can find out more about TransUnion at or call 1-800-888-4213.

We found the cost to get your report can range from $9 to nearly $30, depending on how in-depth your request is. Keep in mind that the information is generally different in each report, including your actual credit score. The three companies work independently of each other.

In fact, TransUnion says the average person's credit score can vary as much as 40 points between the three agencies. Unfortunately, you have no way of knowing which report a banker will look at so you want to be aware of all three.

All three agencies offer you the chance to get your 3-in-1 report, and the cost ranges from $29.95 to $39.95. Credit reports in Colorado, Georgia, Massachusetts, Maryland, New Jersey and Vermont are free.

However, by the end of the year a new federal law goes into effect, the Fair and Accurate Credit Transactions Act, which will allow consumers to get one free report from each credit agency each year.

Still, you might want to opt to pay for a consolidated report because it will give you your credit data from all agencies in one easy to read report.

4. Be on top of any errors.

It makes good sense to do a preemptive check on your credit report before you even go to bank or a mortgage broker.

Sometimes the agencies will make a mistake. You have a right under the Fair Credit Reporting Act to dispute information you feel is inaccurate.

If you find a mistake, write to the agency immediately detailing how the report is wrong and provide information, receipts and cancelled checks to back up your claim. In your letter be sure to include your full name, mailing address, Social Security number, date of birth, the item in question as well as the reason for your disagreement.

Sending the letter via certified mail is a good idea, since this way you know the agency has received it. Save the receipt as well as copies of all pertinent information. The agency has 30 days to investigate your complaint.

If you find negative information that is not a mistake, it won't be with you forever. The Fair Credit Reporting Act mandates that negative information on your report be removed after a certain period of time. For example, declaring bankruptcy is supposed to be removed from the report after 10 years.

If you are the victim of identity theft and it is hurting your credit report, there are a few steps you can take.

Log onto This is the Web site for the Identity Theft Resource Center, a non-profit organization. There is a section that addresses collection agencies and identity theft. Write letters to the collection agencies and send along any documentation you have as proof.

There is also nothing wrong with playing hardball -- give the agencies a timeframe, and if you don't get any action say you'll consider legal action against them and possibly talk to an attorney.

5. Maintenance is key.

Of course paying your bills on time is the best way to maintain a clean credit report and respectable score. But make sure your good work is recognized by keeping a close eye on your report.

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If you are using credit heavily you may consider checking your report about every 90 days. But if you don't use credit that often and your situation is stable, checking it once or twice a year is fine, according to John Danaher, President of

Besides checking your report regularly for errors, there are several other steps you can take to prevent any further damage to your score and even improve it.

For one thing, be as punctual as possible on paying your bills. Late payments tend to have negative effects on your score.

Watch your debt. Try to keep your balances 50 percent below your available credit. If you have a $1,000 limit, keep it below $500.

And try not to jump from card to card. If you're in the habit of switching to another credit card, just because you are running out of room on another, stop now. Every time you apply for new credit, an inquiry is noted on your report. This can weigh down your score.

Finally, one bit of advice for married couples. If you share a card or cosign any loan, you are liable for each other's debts. It is important for each of you to have at least one card or loan in your own name. It will be important to have a separate credit history in the unfortunate event of divorce or death.

Gerri Willis is a personal finance editor for CNN Business News. Willis also is co-host of CNNfn's The FlipSide, weekdays from 11 a.m. to 12:30 p.m. (ET). E-mail comments to  Top of page

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