Do you know what your credit score is? A credit score is sort of like the SAT for credit. Only instead of predicting success in college, it tells a lender how likely you are to repay your loan. Paying attention to your credit score can pay off -- a higher score can snag you a lower interest rate or qualify you for smaller down payment.

Credit scores are used not only by mortgage and auto lenders and credit card issuers, but also by some homeowners and auto insurance companies and even by some prospective employers and landlords.

Ingredients of a FICO score

There are many different credit scores in use, but lenders overwhelmingly use FICO scores, named after Fair, Isaac and Co., the California-based company that developed the software for analyzing credit reports.

A FICO score is based on five key factors (scores do not consider gender, income, race, religion, marital status or national origin):

• Your payment history (which accounts for the biggest chunk -- about 35% -- of your score);



• How much you owe on all your accounts compared with your available credit (about 30% of your score);



• The length of your credit history (about 15%);



• How much new credit you've been seeking (about 15%);



• The types of credit you use -- is it a healthy mix? (about 10%).

FICO scores range from 300 to about 850; the higher the score the better. According to the National Association of Mortgage Brokers, consumers with credit scores of 680 or higher generally get the best deals and fastest loan approvals. Scores between 620 and 680, says NAMB, are still good, but borrowers with scores below 620 "may find themselves locked out of the best loan rates and terms."

Richard Le Febvre, president of AAA American Credit, a credit bureau in Flagstaff, Ariz., and an activist working to improve the credit scoring process, says the best deals go to the consumers with scores of 730 or higher.

How to boost your score

You can see your credit score along with a copy of your credit report. Equifax, in a partnership with Fair, Isaac, provides the actual FICO scores Equifax ships to lenders. Experian and TransUnion also generate FICO scores for lenders, but they provide consumers with slightly different scores. Scores come with a list of the top four reasons your score wasn't higher.

A low score doesn't mean you won't get credit, but it may mean you'll have to look harder for a lender and pay a higher rate. Here's how you can improve your credit score.

• Keep your credit card account balances low. "Low" will vary with the lender, but Craig Watts, spokesman for Fair, Isaac, suggests keeping balances at less than 50% of your available credit. Le Febvre recommends using no more than one-third.



• Don't pack too much plastic. The fewer cards you have, the better -- but keep at least one. However, just closing unused accounts won't necessarily help your score, says Watts. In fact, since it reduces your available credit it might hurt you by making your outstanding balance a higher percentage of your available credit.



• Pay down debt. And do it as fast as you can, even if it's totally manageable on your income.



• Minimize credit checks. Be careful when shopping for rates on and off the Internet. To get a personalized rate quote you'll probably have to give a social security number and other information that will allow the lender to check your credit score. When they do that at your request it's counted as an inquiry.

Current FICO software ignores auto and mortgage-related inquiries made within 30 days of completing a full application and also counts any similar queries made within any prior two-week period as one inquiry. But if the lender still uses an older version of FICO software (and many do), too many inquiries can count against you.

Note that when a bank checks your record on its own to pre-qualify you for a credit card, say, or when you request your own credit record, those inquiries don't count at all.

• Check your credit report. About three to six months before you apply for a loan, get a copy of your credit report and credit score from each of the three national credit bureaus. Credit scores are available only online from Equifax, Fair, Isaac and Experian. You can order your credit report with your score by mail or on the phone from TransUnion.

There is a good chance that there is something wrong with your credit report (Le Febvre estimates that 70% to 80% of credit reports have errors that could negatively affect a credit score). The procedures to dispute errors will be spelled out with your credit report.

MORE: Kiplinger.com | Your Money | Credit & Money Management

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