When we were in school, report cards and our GPA were important. As adults, it’s our credit score.

Most people associate their credit score with obtaining a mortgage. However, it is applicable in many situations. As we begin considering our motivations for wealth, we should avoid being careless with our spending, especially on credit.

A good credit score helps you avoid a security deposit when getting a cell phone or a new utility account. Property managers run credit checks when you apply for an apartment or office space. Employers may check credit during the hiring process.

What should my score be?

FICO scores start in the 300 range and go into the 800s. Ideally, we want to be a part of the 800 club. The best interest rates are usually available if your score is above 700.

How does my credit score impact my loan?

Keeping tabs on your credit will more than pay off with lower interest rates and smaller monthly payments. For example, the average interest rate today for a person with a FICO score in the 700 range is 6.5%. The monthly payment on a $250,000 mortgage would be about $1580.

If a person’s FICO score is in the 600 range, the interest rate would increase to about 8.9%, making the monthly payment jump to about $1994. The difference in the payment is $414. That adds up to about $5,000 a year in extra expenses.

What can I do to fix my score?

The best thing to do is to pay your bills on time. Late payments greatly impact your score. Negative information, such as late payments and collections, stays on your report for seven years. Public records, such as judgments and liens, stay on for ten years.

Another important thing is keeping your balances low. Ideally, you should stay below 25% of the available credit. However, if you are under the 50% mark, you should be OK. Don’t max out those credit cards.

The length of your credit history is also important. Your score is based on the average age of your open accounts. Don’t open too many new accounts because it lowers the average age of your accounts.

Don’t close old accounts, even if you aren’t using them. Not only will closing those accounts reduce the length of your credit history, but it will also increase the amount of available credit that you are actually using.

While some people place a lot of emphasis on inquiries, they really do not impact your score much. I would recommend concentrating on the other issues I mentioned.

How do I fix this?

While there are many companies that will attempt to improve your credit score after you pay them hundreds or thousands of dollars, there really are no quick fixes. The best part is that you can do it yourself.