Your Credit Score: A Very Important Number

You credit score is a numerical rating that purports to be a quantitative representation of your future credit worthiness. The power that this three-digit number has on your life shouldn't be underestimated. It can, among other things, determine whether or not you will get a particular job (many employers now check credit scores as part of the hiring process) and whether, for how much and on what terms you will be able to borrow money to buy a house or lease a car.

To get an idea of the impact your credit score can have on the interest you pay on a loan, check out the loan savings calculator on the myFICO.com website. Also check out these posts on the Vault discussion board on credit scores.

• Discussion about credit scores on the Vault Law Message Board
• Discussion about credit scores on the Vault McKinsey Message Board

Credit scores are determined on a scale from 300 to 850. Nationwide, the average score is 677. Anything over 700 is generally considered "good."

To make matters more opaque, you actually have three scores. Each of the three credit bureaus: Experian (www.experian.com), Trans Union (www.tuc.com), and Equifax (www.equifax.com), calculates a separate score for you based on information the credit bureau keeps on file about you. These files, which contain information on your debts and payments, are also called your credit report(s).

As the information in your credit report changes, your credit score tends to change as well. Exactly how your score is calculated is a very closely guarded secret, but generally speaking payment history accounts for 35% of the score; amount of money owed counts for 30%; how long your credit has been tracked represents 15%; and the amount of new credit applied for and the types of credit (credit card, mortgage) you have each count for 10%.

Some things that negatively affect your score are not having a credit track record, being late with payments, having too many credit cards or other debt or having too many inquiries made regarding your credit over a short period of time.

Given how important your credit score is to your life, it is crucial that you make sure your credit report is absolutely accurate. Word is that anywhere from 30% to 80% of credit reports contain mistakes ranging from out-of-date information to listing debts that don't belong to you. It used to be difficult to get your hands on your credit report(s). But now, thanks to Congress, the Fair Credit Reporting Act gives you a right to a free copy of your credit report annually from each credit bureau. You can get your reports through a website set up by the credit bureaus at www.annualcreditreport.com.

You can view and print your free reports online immediately (and can save them online for 30 days) or can request them by phone or mail. Because each company keeps separate records on you, be sure to request reports from all three companies.

The annoying thing is that your free credit report does not include your credit score, which is, of course, ultimately what you want to know. Each of the three companies will include your credit score for $6 or so. If you don't know your score, it's probably worthwhile to buy it from just one of the three credit companies; as long as your credit reports are similar, your scores from each company should be similar as well.

If you find inaccuracies in any of the three reports make sure to follow up with the relevant credit bureau and get your report fixed (each company provides information on how to do that on their website). Beware, getting the companies to fix things can be a hassle, but your persistence can payoff in many ways: a better job and significantly lower monthly mortgage or lease payments, to name just a few.