Okay, let’s talk credit scores and credit reports– first a quick and dirty education. What’s a credit score? A credit score is a three-digit number between 300 and 850 derived from an analysis of your credit report. Lower scores denote higher risk, resulting in either a decline from creditors or much less favorable terms.

Knowing your credit score is imperative– as it can affect more than just your ability to borrow money– it can also affect your ability to get a job and even your insurance rates.  It’s important to know BOTH your actual score as well as to clear up any discrepancies on the full report– here’s how to get BOTH your score and your report for FREE– fabuLESS!

Check your credit score for FREE here: www.bit.ly/fabuLESScs and here: www.bit.ly/fabuLESSck  You should check your score in BOTH places as they’re from different bureaus.

fabuLESS tip: Checking your OWN credit score does not negatively affect your credit score, having a potential creditor pull your credit DOES drop your credit score. Don’t let a creditor check your credit unless you’ve checked your own score first and are very confident that you’ll be approved.

You have three credit scores, one from each of the three major credit bureaus: TransUnion, Experian and Equifax. The exact formula used to compute your score is not disclosed, but the five factors that determine your score are: payment history (35 percent), amounts owed (30 percent), length of credit history (15 percent), new credit (10 percent) and types of credit used (10 percent).

You can and should also pull your credit reports fro FREE here: www.annualcreditreport.com and you should do so NOW. Your credit report is the information that each bureau uses to compute your credit score so any inaccuracies can and will be reflected in your score. Once you have the reports in your hand, review all of the sections on each of your three credit reports. Should there be any inaccuracies, you should dispute the information; the credit bureau must respond within 30 to 45 days. If it agrees that the information is inaccurate or should it fail to respond, the information will be removed. You can also add a short — 100 words or less — statement to your credit report where you can explain any issues that may have contributed to your credit history.

There are FIVE variables that affect your credit score: payment history (35 percent), amounts owed (30 percent), length of credit history (15 percent), new credit (10 percent) and types of credit used (10 percent).

Some relatively ‘quick’ fixes are transferring your balance(s) so that no one credit card is close to maxed out and you might score a lower interest rate (maybe even 0%!), too– your goal is to utilize less than 30% of your available credit on each card at any time. You can also ask for either/or a) a better rate which will allow you to pay down your balances that much faster or b) an increase in your credit line which will lower your credit utilization and lower your minimum monthly payment.

Another quick fix is to ask an older (and responsible) friend or relative to add you as an authorized user on their oldest credit card account (they do NOT have to give you the actual card!)– that will add age to your report, which will help.

The next ‘easiest’ fix is to diversify your credit: You want to have BOTH revolving credit (i.e. credit cards) and installment loans (i.e. personal loan, auto loan, etc) on your account to help boost your credit. So, if you’ve only had credit cards, taking out a very small personal loan from a bank and pay it back in full will help to build your credit score (just make sure that the bank or credit union reports to credit bureaus!) If you haven’t ever had a credit card, you will want to get one and use it (RESPONSIBLY!)–before applying for a credit card

Let’s talk credit cards– there are three kinds of credit cards: unsecured, secured and prepaid. (We’re going to ignore prepaid cards as almost none of them report to credit bureaus and therefore do nothing to build your credit.)

Unsecured: Generally reserved for those with credit scores above 650; they do not require a deposit.

Secured: Most will be approved for this kind of card, but you must come up with a deposit as collateral that will be held by the issuing credit card company to “secure” the card. You will get your deposit back in full when you close your account in good standing.

BEFORE you apply for ANY credit card, you want to know your scores AND check your credit report. Applying without knowing that you’ll likely be approved WILL hurt your score and take you further away from your goal of getting a credit card.

Fortunately, there are a number of good credit cards designed for those with less than stellar credit. First, start with your bank or credit union, since these entities might be most willing to work with you. Be sure to bring your scores and reports with you. Show them the reports and ask that they not pull your credit unless they can verify that you, based upon the information in your credit report, are likely to be approved. If they say no, then thank them and walk away.

If your score is below 650, you are unlikely to qualify for unsecured cards, and you may want to go straight to a secured card instead. You’ll have to put a deposit down to secure your credit line on a secured card, usually equal to your credit limit. If you’re declined for a secured card, which is rare but does happen, then consider prepaid cards, but only consider those that report to credit bureaus.

As you demonstrate that you can handle credit responsibly, your credit score and report will improve — and then you can upgrade from a prepaid to a secured card, from a secured card to an unsecured card and from a basic unsecured card to one that has favorable rates, fees and even perks such as cash back.

It’s not an instantaneous process to build– or to rebuild your credit, but it’s one worth taking- your credit score is one of your most valuable assets– one that money can’t buy! Building or rebuilding credit takes time– but if you do nothing, nothing will change! To borrow one of my favorite quotes “a year from now you will wish that you had started today”

Moving forward, your recent credit history is FAR MORE IMPORTANT than your past transgressions. Paying on time EVERY time is crucial

fabuLESS tip: set up an automatic bill payment for at least the minimum payment for your credit card so you NEVER miss a payment!