How to better understand your credit score

We all know good credit is important for getting a loan, and employers increasingly are looking for good credit scores as a hiring criteria. Your credit score can seem scary if you believe you have no control over it. Advertising for credit-related services plays off fears that credit can be irreparably damaged and must be continuously monitored. Ignore the hype.

Good to know

4 major types of rewards

• Travel: Accumulate miles
and/or hotel stays based on purchases. Cards that award miles for
flight purchases are great for frequent flyers. Those that award
miles on routine household purchases like gas and groceries can
result in free airfare quickly.

•  Merchandise/Services:
These rewards can be significant if you choose a card that offers
reward products or services your family actually uses.

•  Balance Transfer:
Transferring a balance from a card with interest to one that offers
a 0% grace period is a great strategy for getting debt under
control. Just make sure you can pay off the balance before high
rate post-trial period kick in.

•  Cash Back: These cards
reward holders back in cash (usually statement credit) for all or
certain types of purchases. A card that offers 2% cash back nets
you for every ,000 spent. It doesn’t take too many trips
through the food and diaper aisles to accumulate that free

Little known perks

A recent MSN Money article listed these valuable “secret”
perks of many credit cards:

• Auto rental collision damage
waiver that covers your personal insurance deductible as well as
towing charges.

• Extended warranty to double
original manufacturer’s repair warranty, up to one year.

• Purchase protection in case
your new stuff is damaged or stolen within 90 days of

• Lost luggage reimbursement
that can cover the cost of luggage and its contents.

Credit scoring is actually very rational and predictable.

What is a FICO?

Credit scores are often generically referred to as “FICO” scores. The three major credit bureaus (Equifax, Experian, and TransUnion) each calculate their own version, but these credit scores contain basically the same information. Records of your credit and payment behavior are aggregated by the credit bureaus and used to calculate a numerical score-usually between 300-850.

The higher the better, as this score represents a prediction of your likelihood to repay a future debt.

How to get a credit report for free

Both simple errors and malicious identify theft can damage your report. The longer they go unchecked, the more damage is done. The Fair Credit Reporting Act entitles Americans to free credit reports. Once per year you may request a free report from each of the three major credit bureaus. In addition to the annual reports, you are eligible to receive a free credit report within 60 days of an adverse credit action. These include being denied credit or receiving substandard credit terms from a lender. You also may be able to get a free credit score if, based on your credit score, you were denied a loan or insurance.

Free reports do not include credit scores. That’s OK. You just need the data behind the score because you want to make sure that there are no errors-like missing mortgage payments-and that someone else is not fraudulently securing credit under your name.

Reports can be requested on the federal government recommended site,, or by calling (877) 322-8228.

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