When it comes to your credit score — the figure the helps lenders decide whether to give you a loan, and at what interest rate — there are some things you can't control.
For example, if you're 18 years old, you won't have a long credit history, which is one factor that can lower a score. Length of credit history accounts for about 15 percent of a credit score.
But there are some behaviors you can change that will raise your credit score over time.
Credit is getting harder to obtain, and some credit card companies are doing things such as asking you to close one credit card and apply for another. Readers are asking more questions. So we went to the experts: the folks at FICO, previously known as Fair Isaac Corp.
They developed the mechanics for calculating the FICO score — the credit score that lenders use most — 20 years ago. They weigh payment history, the amount of money you owe, how long you've had the credit, and collections and bankruptcies, among other factors.
The three national credit-reporting agencies — Equifax, Experian and TransUnion — collect data supplied by lenders. This information includes such items as late payments, loan balances and amount available for borrowing, and loans you have paid off.
FICO scores combine your credit history information from credit-reporting bureaus TransUnion and Equifax to create a number from 300 to 850. (The third credit-reporting bureau, Experian, no longer makes its information available to FICO, but its Web site notes that you can get its separate credit score.)
For some financial institutions, the higher your credit score, the lower the interest rate you'll be offered. At http://www.myfico.com/Default.aspx">www.myfico.com, charts show how lower FICO scores can affect mortgage payments and car loans. For example, a lower FICO score would cost an extra $59 a month, a total of $2,124, over three years (using national averages as of Oct. 6).
Tips from the experts
Here are the three most important rules to get the best credit score, according to Barry Paperno, consumer operations manager for FICO:
• Always make your payments on time. That means not even one day late. Paperno says he has talked to service members from time to time and knows that managing finances while deployed can be a challenge. If your finances are being managed by someone else, make sure that person makes the payments on time.
• Keep your debt level low.
• Apply for new accounts only as needed.
Your credit questions answered
Barry Paperno, consumer operations manager for FICO, answers reader's questions:
1. What's the fastest way to improve your credit score?
That depends on why your score isn't already higher. But since the most weight (35 percent) is given to payment history, start making sure you get those payments in on time — or early. If you have a few payments that are more than 30 days late, it may take a few months for your score to improve with timely payments. If you have a longer history of more serious issues, it may take months or years to see an uptick in your credit score.
If your biggest problem is not payment history but the amount of indebtedness, you might make a quicker difference — if you've got the money — by paying down debts in a short period of time. That can increase your score quickly and substantially, even in as little as 30 days.
2. Which is better to pay off first: car loan or credit cards?
You get more bang for your buck — at least in terms of your credit score — by paying down credit cards before paying off mortgages, car loans or student loans.
3. How much revolving debt (such as credit cards) is bad?
The second biggest component of a FICO score (30 percent) is the amount you owe in revolving debt.
The ideal is to limit your revolving debt to no more than 10 percent of the credit available in a revolving debt account. While a common financial management yardstick is to maintain a debt ratio of 30 percent or lower, that's not something FICO uses, Paperno said. But even 30 percent is a lot better than being maxed out at 100 percent.
For example, if you have two credit cards, each with a limit of $1,500, your available credit is $3,000. If you carry a balance of $300 on one card and no balance on the other, you're using one-tenth of your available credit — a debt ratio of 10 percent. But on that one card, your debt ratio is 20 percent.
You'd be better off if your balance was $150 on one card and $150 on the other card, because you'd be at a debt ratio of 10 percent on each card, and 10 percent overall. The credit score takes into account both the usage on each card and the overall percentage of debt usage.
4. Should you close accounts?
By closing accounts, you're reducing your bottom line of available credit, which could hurt your credit score by increasing your general debt ratio. For example, let's say you have three credit cards, each with a $2,000 limit, and you carry a balance of $1,000 on one of the cards, giving you an overall debt ratio of 17 percent. If you close out one of the cards, eliminating $2,000 worth of credit, your debt ratio goes up to 25 percent.
5. Should you get a secured credit card?
Whether a credit card is secured has no bearing on a credit score.
The Marine lance corporal who asked this question said he had medical bills for a while; he has paid off his debt, but his score is too low to get a regular credit card. For people like this, a "secured" card issued by a major bank or financial institution is an alternative. These cards require cash to be deposited up front with the financial institution, and that cash becomes the credit line for the account.
Because the lance corporal's medical debt is now paid off, his score will increase slowly over time, Paperno said. But if the lance corporal wants to speed up that process, a secured Visa or MasterCard may be a solution. Just make sure the financial institution reports the secured credit card to the credit reporting agencies, he says — if not, it won't help your score.
Some financial institutions have programs that allow you to transition from a secured card to a regular card.
6. Who offers legitimate credit repair services?
A sailor living in Florida asked this question because of some bad marks on his credit between 2000 and 2003. He and his wife now want to buy a house.
Be wary of anyone who claims to be able to clean up your credit by changing the past. "No one can remove accurate information from credit reports," Paperno said.
He suggests using nonprofit consumer credit counseling organizations, which can also help you examine your budget and your spending habits.
Military financial management offices on installations can help you do this, too, or refer you to a reputable nonprofit organization.
7. How does consumer credit counseling affect your credit score?
Using the services of a nonprofit consumer credit counseling organization generally will not affect your credit score, Paperno said. It may show on the credit report that money is being repaid through a debt counseling service, which is not negative in itself — but if the debt counseling service makes the payment late, it could affect the credit score.
If you or a debt counseling service has negotiated with a credit card company to pay less than what you owe, that will show up on the credit report as being settled for less than the amount due. That could affect your credit score.
8. How does marriage affect your credit score?
Marriage doesn't directly affect your credit scores because your accounts have been in your individual names. But over time, as you commingle those accounts, and add names to credit cards, the scores do become intertwined.