(MONEY Magazine) – Two years ago, Sheryl Goldstein, director of marketing for an Internet company, was hunting for a house within commuting distance of New York City. She narrowed her search to Montclair, a pretty New Jersey town with excellent schools, hooked up with a mortgage broker and applied for pre-approval. Then a colleague suggested she check her credit score on myfico.com to see what sort of interest rate she could expect. "I'd never even heard of FICO," Goldstein recalls. But she surfed over to the website of Fair Isaac Corp., the company responsible for the scores used to make some 25 billion credit decisions a year.

She paid $38.95 for a report detailing her scores from all three major credit bureaus. The result: a score in the high 600s. Not terrible--but not great. Only when you surpass 700 to 720 can you borrow at the best rates.

In Goldstein's case, scoring under 700 meant the difference between a 6.25% mortgage and one half a point higher. "I was pretty upset about it," she says. And she didn't understand what hurt her score. "I always pay my bills. I don't have any defaults."

The myfico.com report opened her eyes. Six months earlier, she'd opened a charge account at Macy's to get 20% off a purchase. Two months later, she'd transferred her balances to a credit card offering 0% interest for six months. Both seemed like smart money-management decisions to Goldstein. But to the credit bureaus they were a sign that she wanted more credit--and that brought her score down. Finally, there was an unpaid phone bill from years earlier when she'd lived in another state. Goldstein, who says she never received a bill, chased down customer service--she owed 75¢.

She straightened out the phone mess, refused all offers for additional credit and monitored her score every six to 12 months. Today her credit score tops 700, and she has refinanced at a preferential rate.

Here's how to avoid an unwelcome surprise.

Step 1: Check your credit score Order a report from myfico.com. Or get a close approximation with the free score simulator at the site.

Step 2: Pay on time The longer you go without being late, the better (represents 35% of your score).

Step 3: Use less of your available credit Aim for 30%. To get there, pay down balances. Don't cancel cards, which reduces your available credit and can lower your score (30%).

Step 4: Don't apply for more cards Every time you apply for credit, the lender pulls your score. Shopping for a mortgage or car loan won't get you into trouble, but multiple card inquiries can lower your score 50 to 100 points (10%).

Step 5: Stay loyal Having at least one card that's more than two years old will help your score. Once you've had it for more than 15 years, the benefits taper off (15%).