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Why you should care about your credit score

And seven ways you can improve it

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Your financial flexibility is written in the numbers.

You may not think about it often, but your credit report — and the three little digits that make up your credit score — can affect your life in many ways. By accessing your credit scores, lenders can predict with some accuracy how likely you will repay a loan and make payments on time. Your credit score can affect the cost of credit (loans) you take out, your ability to rent or buy a home, the insurance rates you pay, and even the jobs you can get.

A credit score is calculated using the information found on your credit report. Scores range from 300 to 850. The higher the score, the better.

Although the major credit bureaus keep the exact formula a mystery, experts break it down this way:

• 35% of your score is based on payment history. That's a good reason to pay your bills on time, every time.
• 30% of your score is based on credit utilization, a ratio of the amount you owe to the amount of credit available to you. That's why you don't want to go too deeply into debt. A good rule of thumb is to keep your card balances at no more than 25 percent of their limits.
• 15% of your score is based on the length of time you’ve had credit. Why? Because the longer your payment history, the more information is available to make an accurate prediction of your future actions.
• 10% of the score is based on new credit. The number of recently opened accounts, number of recent credit inquiries, the time since new accounts were opened, and the re-establishment of positive credit following payment problems are all considered.
• 10% of the score is based on the types of credit you currently have. A higher score is awarded if you can show experience with several different types of credit accounts, such as secured and unsecured credit.

Remember, a credit score is a "snapshot" of your risk at the time you request credit. It's generated based on the information in your credit report at that moment.

You can obtain a free copy of your credit report by visiting annualcreditreport.com. You are entitled to one free credit report per credit reporting agency each year.

Your score may vary from one credit-reporting agency to the next because your credit history may be different at each of those agencies. The important thing to remember is that maintaining a positive credit score will provide you with greater financial flexibility and greater ability to enjoy financial freedom in the future.