I’ve always wondered if people would pay more attention to their credit score if they wrote the number on a sticky note and walked around with it displayed on their forehead. Everybody is so focused on weight, which people can judge you by immediately, but most ignore their credit score because it’s not something that anyone can see on a daily basis.

People don’t realize they have a bad score until they need a really good score.  Then, kind of like trying to lose 5 pounds in 3 days for a hot date, you want to quickly improve your credit score–but it’s not that easy.

 Why Your Credit Score Matters

Your credit score, or FICO score, ranges between 350 and 800 and is an indication of your creditworthiness.  Creditworthiness is important for the following reasons:

• Lenders use your score to decide if they will loan money to you for a mortgage.
• Insurance companies use your score to determine how much you’ll pay for insurance.
• Phone companies use your score to help decide if they want to enter into a contract with you.
• Landlords use your score to help them decide if they want to rent an apartment to you.

Here’s a chart that shows you exactly how your credit score is determined:

You can see that about 65 percent has to do with two things: payment history (how good you are at paying your bills) and how much debt you have outstanding.

The funny thing is, when people are focused on their weight they know that they need to eat healthy and exercise to stay trim. But, do people do that? No, because there are too many temptations on a daily basis for us to splurge.

For example, we have Reese’s Peanut Butter Cups at the office, and I eat them few times a week.  I also go out and have drinks with my friends, eat tuna melts and French fries at my favorite deli—and then I wonder why I have cellulite!

Unfortunately if you know what to do to get a good credit score, and then do the opposite, like I do when consuming mass quantities of Reese’s Peanut Butter Cups, the repercussions are much bigger than a few extra dimples.

If you want to purchase a home, buy a car, get a credit card, rent an apartment, lease a car, or open a new utility contract and you have bad credit, you won’t be able to because nobody will want to work with you.

Or, you’ll have to pay extra money because you’re considered a high risk.  You will pay more money to make up for them taking on that risk—“that risk” being you not paying your bills

 How To Get a Good Credit Score

An excellent credit score is anything above 740.  There are lots of ways to botch this number, but if you follow a few simply steps you’ll be well on your way to a good credit score.

 1) Review your credit report at AnnualCreditReport.com. You can get a free copy of your report once per year. One of the main reasons to review your report is to see if you have any delinquent payments that you’re unaware of that might bring down your credit score.

Don’t be like me. One time I moved and I forgot to notify my credit card company about my change of address. I didn’t pay the bill for 3 months, because I wasn’t getting it at my new apartment (totally not my fault, right?!). I had a small balance of about $75, which I paid off once I figured out my bill was still going to my old address, but it brought down my credit score by a decent amount because I was delinquent with my payment.

I discovered this error only because I reviewed my credit report. You better believe that I’m now always diligent about updating my new address with lenders when I move.

2) Keep your amount of outstanding debt low relative to your amount of available credit. This is called your credit utilization score and represents about 30 percent of your credit score (the purple area above).

If you have $4,000 in debt and you have a credit limit on your credit card of $10,000, your credit utilization ratio is 40 percent. A good credit utilization number is below 30 percent, so work to bring your credit utilization to 30 percent or below.

3) You don’t want one big fat balance on one card. Spread debt between a few different creditors. It’s better to have small balances on a few credit cards, and pay off the balance each month, than one credit card with a large balance that you’re not paying off each month. Lenders want to see that you’re good at paying off balances over time and can manage your debt. Also, keep all credit utilization ratios on each of your cards below 30 percent.

 4) Student loan debt impacts your credit score less than credit card debt, so always pay off your credit card debt first. Lenders classify student debt as “installment debt,” and installment debt impacts your credit utilization ratio less than credit card debt, which is “revolving debt.”

Would you still ignore your score if you had to walk around with the number written on your forehead?  You think about that–I’m going to get some Reese’s Peanut Butter Cups!

Written by Kathryn C. for Moxy Magazine, July 2011. Chart photo credit: www.fico.com. Image photo credit:amazon.com; front page photo credit: flckr.com user ginnerobot.