The vast collection of personal information held by the bureaus is being put to use to predict all sorts of things, from whether you can afford a timeshare apartment to whether you’ll take the osteoporosis drugs your doctor prescribed. It’s a marketer’s dream — a world in which there’s a score to predict every possible consumer behavior.

Here is a sampling of some of the new behavior-predicting scores, which marketers, financial services companies and health care providers can now access for as little as a dollar per file.

• Capacity to Pay: Developed by Equifax, this score helps debt collectors determine which accounts are the most profitable to pursue and which consumers are most likely to pay up.

• FICO Bankruptcy Scores: These scores analyze data from credit reporting agencies to pinpoint accounts at higher risk for bankruptcy.

• Income Insight: Developed by Experian, this score provides an estimate of credit applicants’ incomes, including wages and investments.

• Medication Adherence Score: Developed by FICO, this score uses data such as your age, marital status, how long you’ve lived at the same address and how long you’ve had your job to predict how likely you are to take your medication. Those scoring low could find themselves badgered by health care providers with email reminders to stay on track.

• Discretionary Spending Index: Developed by Equifax, the Discretionary Spending Index uses data available to credit reporting agencies to ferret out high-rolling consumers with extra money to spend.

• CoreScore: In development by financial data company CoreLogic, this score targets those who don’t have much credit history. It uses information not typically found on credit reports, including rental records, payday loan applications and even public court records, such as property liens, evictions and child support judgments. The first CoreScore available will be designed for mortgage lenders.

While the new scores may be a dream come true for bankers and marketing companies, consumer advocates argue that the proliferation of new behavior modeling scores raises significant consumer rights and privacy issues.
Any score is only as good as the data at hand, notes Chad Gentry, executive director at the nonprofit Community Credit Counseling Services in Denver.

“Maybe 90 percent of the scores are an accurate reflection of what they seek to indicate,” Gentry says. “But the problem is when there is not enough data points. For people with a thin file, there may not be enough data to discriminate.”

Gentry also points out that life events — such as major medical debt — force people to take drastic measures, such as walking away from a mortgage or declaring bankruptcy. The person may have had a perfect record before and after, yet those events will blemish the person’s credit file for years to come.

At the heart of the issue is whether consumers will be denied access to services or opportunities (or be forced to pay a higher price for them) based on behavior modeling scores. Gentry points out that people with poor credit already are disadvantaged in the workplace.

In the military, for example, both security clearance and promotions are capped on the basis of credit scores. The police department runs on the same principle, as do major defense contractors.

“This makes a lot of sense, because people with poor finances are more likely to take bribes or be persuaded to do things because of money,” Gentry says. “However, employment in general is impacted pretty heavily right now based on your credit score. Even McDonald’s has started taking scores into consideration.”

Roughly six out of 10 employers now include credit checks for some or all prospective employees, according to a survey by the Society of Human Resource Management. Car insurance companies also use your credit history to help determine how much you’ll pay for coverage.

Are current laws, like the Fair Credit Reporting Act, sufficient for dealing with the new types of scores?

“Legislation is always running behind the curve,” Gentry says. “Legislation coming out right now, such as the Dodd-Frank Consumer Protection Act, is just catching up with things that happened years back. Ten years from today, someone will say, ‘I wonder if this medical modeling is a breach of people’s privacy?’”

Autopay “accomplishes several things,” writes blogger Kate Ashford on Her Two Cents. “Thing One: I never pay a late fee. Thing Two: I never pay interest charges. Thing Three: I never panic at 11:59 p.m. on the day that my credit card bill is due.”

While automatic credit card payments are convenient, they’re not necessarily a good fit for everyone. Here are the pros and cons.

Pros

You’ll save time and trouble.
Many Americans actively use multiple cards. It’s not unusual for people to rotate charges among two to three rewards credit cards to maximize rewards earnings, for example. Some may also have a low interest credit card dedicated to carrying balances or a balance transfer card that is not being used for new purchases.

Using multiple credit cards can be a great way to maximize benefits. However, keeping track of multiple credit card payments can be a nuisance — and linking your credit card to your checking account can be a great way to ensure that payments get made on time each month.

It will help keep credit cards active.
Credit scoring models reward people who show they can manage several credit accounts, so using multiple credit card accounts actively can help boost your credit score (as long as you don’t keep high balances). This will also protect you against credit limit cuts or account closures, which card issuers may otherwise resort to if the account goes unused. Credit limit cuts could hurt your credit score, since card balances now will be a higher percentage of the remaining credit limit.

Automatic payments are a great way to keep unused credit cards active without extra bill payments. Set up one monthly charge (a water bill or electric bill, for example) to the credit card you want to keep active. Next, set up an automatic payment from your checking account, so that the credit card bill gets paid each month.

Cons

Your overdraft risk is higher.
Unless you have a comfortable cushion of cash in your checking account, there is always a risk that the automatic credit card payments may create an overdraft.

“Do not do this if you play the ‘Will-That-Payment-Bounce?’ game with your checking account,” notes Ashford. “If your credit card tries to deduct a payment from your bank account and your balance doesn’t cover it, sheer madness (and charges) will occur.”

What Ashford is referring to is the triple whammy of a checking account overdraft fee, a returned credit card payment and possibly a late payment, if you don’t catch the mistake in time.

You can reduce this risk by setting up the account to pay just the minimum monthly amount due on the credit card bill each month. However, that’s not an ideal solution either, since carrying high-interest credit card balances can hurt both your credit score and your pocketbook.

How to fix: Set the automatic payment to cover the minimum monthly payment each month, and then manually pay any additional amount you can afford each month as well. This solution voids much of the convenience of automatic payments, but at least you’re insured against late payments.

Fixed monthly payments could trip you up.
Some automatic payment options give cardholders the choice to also pay a fixed amount on the credit card bill each month. While that may seem like an ideal solution to the above issue, it can get tricky as well.

For example, for someone carrying a 0 percent annual percentage ratio (APR) balance on a credit card, making a fixed monthly payment would make sense. However, once the 0 percent APR expires, interest charges will make monthly payments go up. If the amount you set for the fixed monthly payment is too low, you might find yourself paying less than the minimum each month — a big credit score mistake.

How to fix: If choosing this option, set the amount comfortably over the current minimum payment, and actively keep on monitoring the credit card account.

It’s easier to overlook unwanted charges.
Once a credit card bill gets set to automatic payment, it’s tempting to just forget about it. This can backfire. There may be monthly subscription payments that you have forgotten about and don’t really want to keep, charges for items you’ve been meaning to return or even fraudulent charges.

How to fix: Never neglect to look through your credit card bill each month before filing it away. It will take minutes and could save you money.

But did you know that improving your credit can also save you thousands of dollars in car insurance?

Consumers with poor credit don’t just pay higher rates on car loans. They also pay much higher premiums on car insurance, say experts.

“I can’t think of anything that increases your insurance rates more when you first apply for car insurance than having bad credit, other, of course, than getting arrested for a DUI,” says Mike Sullivan, Director of Education for Take Charge America. “You won’t just pay much higher rates, you’ll also have much less flexibility when it comes to shopping around for auto insurance.”

How much more will you likely have to pay for insurance if you have poor credit? “A consumer with bad credit is going to pay 20 to 50 percent more in auto insurance premiums than a person who has good credit,” said Clarence Smith, former assistant vice-president at Conning & Co in an interview with Bankrate.com.

Insurance companies weigh credit histories when determining risk
Car insurance companies don’t necessarily use traditional credit scores. Instead, they get a specialized ‘insurance score’ from FICO or calculate their own insurance scores for drivers based on the person’s credit usage patterns as well as other factors. The insurance score provides an estimate for how likely the person is to make a claim against the insurance.

Unfortunately, if your credit changes, so may your car insurance premiums, even if you never have an accident.

“I’ve seen instances where people have lost a job and have been unable to pay for car insurance and had it cancelled,” says Sullivan. “Then when they went to get insurance again, their rates increased by 25 percent or more, even though their driving record was the same. When asking why, they get the response that they now are a greater risk.”

Some states, including California, Massachusetts and Hawaii, have laws that bar against the use of credit scores in auto insurance rate calculations. However, if you happen to live in a state where your car insurance rate is likely to be affected by your credit history, there are still steps you can take to improve your rate.

1. Find out what your insurance score is.
Find out how auto insurance companies see your credit record. For a small fee, you can pull your estimated insurance score from TrueCredit, a service of Transunion.

2. Take steps to improve your FICO score.
Improving your scores is not as hard as it may seem. Some of the key factors car insurers incorporate in credit-based insurance scores include the same factors that FICO uses to calculate credit scores, such as outstanding debt, late payments, recent applications for new credit, length of credit history and so on.

3. Get to know your C.L.U.E. report.
The C.L.U.E. report is auto insurers’ equivalent of a credit report. It provides a record of the past seven years of prior claim information for auto insurance losses, including loss type, amount paid and other relevant information.

Similar to credit reports, under the Fair Credit Reporting Act, consumers are entitled to a free copy of their C.L.U.E. report once a year to enable them to verify the accuracy of the information. You can request a copy from LexisNexis, the company that maintains the database.

Review the report for inaccuracies and follow the recommended steps to correct them to make sure insurers get the correct picture of your claims record.

4. Shop around.
Insurers use a variety of data to calculate your risk and getting quotes from multiple insurers can help ensure a better rate. Use an online service to get quotes from multiple insurers quickly and easily.

5. Ask for exceptions.
According to Consumer Reports, some insurers, such as Progressive, may rescore your insurance score if it has been adversely affected by job loss, medical problems or the death of a family member.

Answer: More than $67,000.

That’s how much consumers with top FICO scores of 760 to 850 would save on a 30-year mortgage at current interest rates, compared to consumers with credit scores of 620 to 639, the lowest range that still qualifies people for a mortgage.

Even consumers with scores in the 700 to 759 range — which is still considered excellent credit — would pay an estimated $9,000 more over the life of the loan compared to those with top scores, according to the Loan Savings Calculator at myFICO.com.

With mortgage rates at historic lows, many people are eyeing a refinance or taking out a new mortgage. But before you rush out to apply for a low rate mortgage, it can pay off big time to spend some time working on your credit score and making sure it is at its best.

That could mean waiting six to twelve months before sending in your application. However, taking the time to get the very best terms can lead to major savings over the long run.

Here are four tips to spruce up your credit score and get the best rates.

1. Avoid window dressing your credit report.
Most consumers know that carrying high balances on their credit cards will pull down credit scores. As a result, many people aggressively pay down their credit card balances just before applying for a loan.

However, window dressing your credit report like that can backfire, according to Maxine Sweet, Vice President of Public Education at Experian. While paying down credit balances does improve scores, dramatically changing the way you use credit may backfire.

“In some cases, right after consumers pay down balances, the credit score will take a slight dip, because you have changed the way you use credit,” says Sweet. “The way all the parts mix together is different, and that can cause the score to be lower. It doesn’t happen to everyone, but you are better off paying down debt three to four months before applying for a big loan.”

2. Stabilize your credit usage.
Along the same lines, Sweet recommends, it’s important to stabilize your credit report and the way you use credit. Banks hate uncertainty, so don’t apply for new credit cards or other loans during this time and don’t close existing credit accounts. Overall, aiming for consistency in credit usage before applying for a mortgage is key.

“Get everything stabilized in the three to six months before applying for a major loan,” says Sweet. “Don’t close accounts, don’t apply for new credit cards, avoid major swings in your account balances. Stabilize everything.”

3. Fix errors on your credit report.
Small mistakes on your credit reports can have a big impact on your credit score. Obviously, you want to check for glaring inaccuracies, particularly on collections or other bad marks that can seriously ding scores.

However, minor mistakes can have a big effect as well. For example, if a card issuer is not reporting the card limit on one of your credit cards, it can be a problem. Because that limit is not included in calculating your credit utilization ratio, it can make it look like you’re using more of your available credit than you really are and pull down your score.

To check, pull a free copy of your credit report at AnnualCreditReport.com (you’re entitled to a free report from each of the major credit reporting agencies once a year). You have to pay to get a copy of your credit score at the same time, but if you’re in the market for a mortgage, that’s an investment well worth it to know where you stand.

4. Do shop around.
Many consumers are afraid of shopping around when applying for a mortgage because they are concerned that multiple credit inquiries will damage their credit score, says Sweet.

However, credit scoring models take into account the fact that consumers will need to apply for a mortgage with several banks in order to take advantage of the best available offers. Rates can vary by more than 1 percent from bank to bank, particularly if you’re dealing with a local bank or credit union.

According to Sweet, both the FICO scoring model and VantageScore allow for multiple credit inquiries during a one to two week window for consumers applying for both mortgages and car loans.

An inquiry after that window has closed could lower scores slightly. But hopefully, by then, you’ll have long since decided which mortgage lender is for you.

In fact, even those with bad credit can raise their scores by as much as 100 points or more in a year, simply by following basic credit management practices like paying bills on time.

And in today’s society, the advantages of improving your credit score are huge. Those with excellent credit have access to the lowest rates on mortgages, car loans and credit cards. They pay less in car insurance and they even have an edge when it comes to applying for a new job or an apartment.

If you’re ready to join the club and get better rates, here are eight simple ways you can improve your credit score in time for your next loan application, without a lot of effort:

1. Charge less. Pay more.
The quickest way to raise your credit score is to improve your credit utilization ratio (which is also known as your debt-to-credit ratio). This ratio measures how much of your available credit you use, and it accounts for almost one third of FICO scores.

The first step to improve your credit utilization ratio is to look for ways to reduce the balances on all your credit cards. Use your credit cards less, always pay more than the minimum amount due and, if you can, pay off the balance in full.

For the very best credit scores — meaning those above 760 — credit experts recommend that you keep your credit utilization rate below 7 to 10 percent of your total credit limit at all times.

2. Ask for a credit limit increase.
Increasing your credit limit across several credit cards is another way to improve your credit utilization ratio. If you’re granted higher credit limits on your cards, your current balances will automatically become a smaller percentage of the total amount of credit you have available.

Call your card issuer to ask if you’re eligible for a credit limit increase. If you have had your credit card for a while and have a history of on-time payments, chances are you qualify for an automatic increase.

If not, the representative will ask for permission to pull your credit report. If you’ve recently had your credit report pulled (or you plan to apply for a loan in the near future), decline the credit inquiry, as it will lower your score.

3. Pay off credit cards early.
Timing matters. Even if you pay off your credit card in full at the end of the month, the balance on the card before you make the payment might still be reported to the credit rating agencies and counted towards your debt-to-credit ratio. Paying early, in contrast, is a quick way to improve your credit utilization and avoid that temporary ding.

“Making the payment before the statement closing date — just five or six days early — can make a big difference over time,” said Lita Epstein, author of “The Complete Idiot’s Guide to Improving Your Credit Score” in an interview with CreditCards.com. “It will be reported to the credit bureaus as a $0 balance and will look like you’re holding less credit.”

4. Spread the love.
To avoid making it look like you’re maxing out one credit card, don’t let the balance on a card get too high. Instead, spread purchases over two to three credit cards to keep the individual utilization low. Your credit utilization ratio is calculated for each individual credit card as well as for the total amount of debt you have spread across all of your credit cards.

5. Redistribute your debt.
Spreading your debt across different types of loans, not just credit cards, can also help your credit score. With interest rates at historic lows, you can use this principle to your advantage by refinancing existing loans.

For example, if you have paid down your car loan below the value of the car, look into refinancing your car and taking out more money than you currently owe. Use the difference to pay down your credit card balances. The car loan is an installment loan, which doesn’t count towards your credit utilization ratio, so this will boost your credit score and save you serious money on interest rates.

The same could be done by taking out a personal loan, by refinancing a home or by taking out a home equity line of credit. However, in the current housing environment, leveraging your house to the hilt is not a good idea.

6. Use it or lose it.
Using credit too little can hurt you, just as using credit too much can. If you have paid off your mortgage and no longer have installment loans, look for ways to add to your credit mix. If you have multiple credit cards and only use a couple of them, rotate cards every three to four months.

Card issuers often reduce the credit limit on unused accounts or even close the account, both of which can hurt scores.

7. Stop applying for new credit cards.
If you’re a rewards credit card bonus junkie or have just been applying for a lot of new credit, stop now. One or two credit inquiries won’t hurt scores, but repeated credit inquiries will.

8. Deal with dings.
If there are problems like late or missed payments on your credit report, it can sometimes pay off to ask your card issuer for a “goodwill adjustment.” This is especially true if you have good credit and you otherwise have been a model customer. Write your card issuer to ask – you may be surprised by their answer.

Another solution, says Harrine Freeman, author of “How to Get Out of Debt: Get an ‘A’ Credit Rating for Free,” is to ask the card issuer to have the account re-aged. If the creditor agrees, the clock is essentially reset on the account.

For example, if you’re two months late on card payments, those two months will be erased. You still owe the same amount of money, but you’re no longer delinquent, and you get a fresh start. This solution doesn’t work for everyone, however.

“Only some card issuers will do it, and your account has to previously have been in good standing,” says Freeman. “It only works for people who have previously had a good credit history and just made late payments because they fell on temporary hardship, such as unemployment or illness.”

But credit scoring models are complex, and there are many other factors involved in winning the credit score game, say experts.

Here are four essential steps to take to make sure you get to the top rung of the credit score ladder.

1. Pull a copy of your credit score.
This step is often overlooked, says Jeanne Kelly, author of “The 90-Day Credit Challenge: Playing the Game of Credit Scoring.” Yet, it’s important to first find out where you’re at, so you know where you need to go.

“My number one message is to be aware of your credit score,” says Kelly. “Sometimes people don’t even know what their score is. But it’s so important to be monitoring your score to stay on top of it.”

While everyone is entitled to a free copy of their credit report once a year from all three rating agencies, Equifax, Experian and TransUnion, consumers generally have to pay a fee to see their credit score. The one exception is for people who have recently been turned down for a credit card application or loan. In that case, recent regulations require lenders to provide a free copy of the credit score they based their decision on.

When paying to see your credit score, Kelly warns that it’s important to distinguish between FICO scores and imitations — the so-called FAKO scores.

“Many people still don’t know that credit scores aren’t the same,” says Kelly. “There are a lot of companies that sell you credit scores, but 90 percent of lenders use FICO scores. So be sure you’re monitoring the credit score that lender use; go directly to FICO.”

Tip: FICO scores are available for purchase only at myFICO.com. After you pay to get a copy of your FICO score, compare it with the score you get when using a free FICO score estimator. If they are close, consider using the free estimator to gauge your progress over time. Or, if money is not an issue, sign up for one of the paid credit score monitoring services.

2. Don’t pay late or skip payments.
Paying credit cards or installment loans late is a sure way to damage your credit score. However, even though most people know this, many still assume that paying credit cards is like paying utility bills: If you skip one month, but pay the balance in full the next, you’re still okay.

Unfortunately, a skipped credit card payment will show up as a 30-day late payment on your credit report. Worse, it will stay there, even if you pay the credit card balance off in full next month.

Tip: Nothing affects your credit score more than missed payments on loans or bills. If you default on a loan or fail to pay a bill, the information will be retained in your credit report for seven years. Don’t go there.

3. Get to know your debt-to-credit ratio.
Credit scores are designed to reflect how well you handle credit. So while paying on time and meeting your credit obligations are important, so is using credit sparingly and with caution. People who carry large balances or max out their credit cards are viewed as a greater credit risk, and this is reflected in their credit scores.

One of the magic formulas lenders use to gauge how responsibly you handle credit is the debt-to-credit ratio, or the credit utilization ratio. It is a measure of how high your balances are across your credit cards in relation to available credit.

To calculate this ratio, total the credit limit across all your credit cards. Then total the credit card balances on those cards. To get the debt to credit ratio, simply divide your total credit card debt by the combined total of your credit limits. For example, if your total credit card debt is $1,000 and the credit limit across all your credit cards is $10,000, the credit utilization ratio (or debt-to-credit ratio) is 0.1 or 10 percent.

Tip: For the best FICO scores, credit utilization should ideally be less than 10 percent. If it is above 30 percent, it will impact your credit score negatively. If you’re currently using 30 percent of your credit limit, take steps to pare back your debt.

4. Check for variety.
Credit scoring models are hard to please. While using too much credit is frowned upon, using credit too little, or rather, not having a variety of credit accounts, can also be a problem.

“Paying your bills on time and keeping credit card balances low are the most important factors for your credit score,” says Kim McGriggs, Community and Media Relations Manager at Money Management International. “But your credit mix is also important. It’s best to keep a variety of different types of credit, such as a couple of credit cards, a car loan or even a mortgage.”

If you’re just beginning to build your credit, apply for credit cards that are relatively easy to get approved for, such as credit cards for people with limited credit or a store credit card. Then gradually build from there.

Tip: Don’t just rush out and apply for lots of different credit cards or other forms of credit. Each time you apply for credit, your credit score is pulled, and too many credit inquiries count against the score as well.

“Start slowly, and make sure you’re developing a pattern of good credit management,” says McGriggs. “Open one account and prove to yourself and other creditors that you can handle that responsibility wisely; then go on to the next.”

The bottom-line: Even little things can impact your FICO score big time so pay attention to the details. No matter what the state of the economy, the credit doors are always open to those with excellent credit. However, it takes attention and careful planning to get there.

Having a fair or good credit score will still get you approved for loans. But only an excellent credit score will qualify you for the best loan terms.

(Article updated 8-23-2011. Originally published 5-22-2009.)

FICO scores are the gold standard of credit scores. However, most consumers are offered other types of credit scores when they sign up for credit monitoring or pull a free copy of their credit report at AnnualCreditReport.com.

According to a recent report by the Consumer Financial Protection Bureau, consumers are often flummoxed by these different credit scores. After all, just trying to keep track of the numerous factors that impact your credit score can be confusing, and the abundance of different credit scoring models doesn’t help.

If credit scores provide a picture of a person’s creditworthiness, how can there be so many different scores, all giving a slightly different picture of a person’s credit situation?

“People tend to think of credit scores as these really precise measurements of how creditworthy one is,” says Joe Ridout of the consumer advocacy group Consumer Action. “But, in truth, there are many factors that come into play, and credit scores are only crude estimates.”

Credit scores from other models, including those from the three credit rating agencies, are often informally referred to as FAKO scores. Here is an overview of the main types of FAKO scores and their scoring range.

• Equifax. Credit scores from Equifax are referred to as the Equifax Credit Score. The Equifax scoring model produces scores ranging from 280 to 850.
• Experian. Experian credit scores go by the name of Experian Plus Scores. Scores range from 330 to 830.
• TransUnion. TransUnion scores are called TransUnion’s TransRisk New Account Score. The scoring range is similar to that of FICO scores, with scores ranging from 300 to 850.
• VantageScore, LLC. VantageScore credit scores are based on a generic scoring model developed by a joint venture established by the three credit rating agencies as an alternative to FICO models. The VantageScore model uses the same scoring formula across all three credit reporting agencies to give a more accurate picture of a person’s credit history, according to Experian’s website. VantageScore credit scores range from 501 to 990.

So, which score should you get, and does it even matter? It depends on your goal, say experts.

If you simply want to keep an eye on your credit score over time, Ridout says that using a free online FICO score estimator is usually enough. This won’t give you your exact FICO score. However, FICO score estimators can help you track changes to your score based on changes to your financial situation or habits. And that is often what most people need to stay on top of their credit score.

However, if you’re planning to take out a large loan like a mortgage, pulling a copy of your credit score beforehand to see where you stand can be important. In that case, the Consumer Financial Protection Bureau recommends obtaining a copy of your FICO score because this is the score lenders are most likely to take into account when evaluating mortgage applications.

However, consumers should note that even with FICO scores, there can be differences based on which credit report the score is based on. The information in the credit reports from the three credit reporting agencies often differs. So to get the most complete picture, you would ideally look at your FICO score for each of your credit reports from the three rating agencies.

FICO scores based on your TransUnion and Equifax credit reports are both available at MyFICO.com. You can either purchase a one-time view or sign up for a subscription for repeated views. Unfortunately, FICO does not have an agreement with Experian to provide FICO scores based on Experian credit reports, so at this time, it’s not possible to see what your FICO score would be based on your Experian credit file.

Still, if you’re looking to apply for a large loan, pulling your FICO score based on the Equifax and TransUnion credit reports will give you a more complete picture of where you stand. It can also alert you to any mistakes or damaging information in one report that may cause the FICO score based on that report to be lower.

The more precise the picture you have of your credit situation, the more you can work with lenders to make sure you get the best possible loan terms. For larger mortgage loans, a lower rate of even half a percent can save you tens of thousands of dollars over the life of the loan. So your initial investment in pulling those FICO scores might well net you a very nice return.

Errors on credit reports are common. In fact, some studies have found that as many as 80 percent of credit reports contain outdated or false information. One of the most common errors occurs when an account that doesn’t belong to you shows up on your credit report. This is especially likely to happen if you have a fairly common name.

Other common credit report errors include outdated or wrong personal information on a credit report and inaccurate or outdated credit limit information. Sometimes, credit reports also won’t show that a delinquency or collection has been resolved, so it is important to catch mistakes early before you are penalized.

It used to be a slow and cumbersome process to check your credit report for errors and correct mistakes. But these days, staying on top of the information contained in your credit report is much easier. Follow these seven simple steps to check your latest report and make sure that it’s accurate:

1. Get a free copy of your credit report. Request a copy of your credit report from each of the three major credit reporting agencies: TransUnion, Experian and Equifax. The information in each report often differs, so it’s important to request a copy from all three credit bureaus. Consumers are entitled by law to get a copy of each of their credit reports once a year. All three reports can be downloaded for free at AnnualCreditReport.com.

2. Check for errors. Once you’ve obtained copies of your credit report, go through it line-by-line to look for errors. Look for inaccuracies, such as:
• misspellings of your name,
• missing credit accounts,
• inaccurate credit limit information,
• credit accounts that belong to someone else and are mistakenly attributed to you,
• data about tax liens or other delinquencies that are not yours,
• records of credit applications that you didn’t submit,
• out-of-date employment information or
• an out-of-date home address.

Highlight any errors in each credit report, so you can easily find them later.

3. Check your credit dings. If your credit report contains negative remarks reflecting previous credit blunders, it’s important to check these for accuracy. For example:
• If you have a late payment on a credit card, is this accurately described as either 30, 60 or 90 days past due?
• Does the report contain records of delinquencies already remedied?
• Is an old collection still showing up, even though it has since been settled?

4. Submit a dispute. It used to be that credit report disputes could only be disputed by mail. But, nowadays, the three major credit bureaus will allow you to submit your corrections online.
Use the links below to go to the dispute sections of:
• Experian,
• Equifax and
• TransUnion.

If you prefer to submit a dispute by mail or by phone, the information about how to do so can also be found using these links.

When submitting the dispute, list the incorrect information and briefly explain why the information is incorrect. It’s especially important to offer supporting facts in your dispute and back them up with any documentation you might have.

5. Contact the creditor that sent the wrong information. Contacting the source of the wrong information can often be the fastest way to resolve the error, so send a letter to the business or creditor from which the information originated. Include a copy of your communication(s) with the credit rating agencies, along with any supporting material you may have. Be specific about what you are requesting — whether it’s deleting an incorrect item or correcting out-of-date information.

6. Keep good records. Keep written records of all your activity so that you can go back and refer to them later, should the need arise. In addition to keeping copies of letters and online submissions, write down main points of your phone conversation(s), along with the date, the phone number and the name of the person you talked to.

7. Be patient. After you submit a correction, the credit bureau has 30 days to verify the information and update the credit report. In the case of a dispute, or if the credit rating agency is unable to verify the credit ding within 30 days, or doesn’t respond, the item will be removed from the credit report and you’ll receive either an e-mail or a written confirmation, depending on how the information was reported. If the source of a negative item verifies the information, the item will stay on the credit report. However, you do have the option to add a 100-word personal statement to explain the situation.

More than three out of four Americans know that making a payment more than 30 days late will lower your credit score; but only about 59 percent are aware that maxing out credit cards can drag your score down as well, according to a survey by the Consumer Federation of America.

Even fewer realize that, when it comes to your credit utilization ratio, you don’t have to max out your credit card for it to affect your FICO score. According to some experts, using more than 30 percent of the available credit on your credit cards can dent your score.

As a result, it’s important to understand the credit utilization component of FICO scores in full. There are many subtle aspects to credit utilization that impact scores, and not knowing about them could affect your credit. If you already have excellent credit, you may still be able to improve your credit by making small adjustments that will favorably impact your credit utilization ratio.

What is credit utilization?

Credit utilization is a measure of credit card debt in relation to the credit available. It is calculated by dividing your outstanding balance with your credit line. This ratio accounts for 30 percent of your FICO score. Carrying high balances across credit cards or other lines of credit detracts from your credit score because it is viewed as a sign that you are under financial duress and/or you are unable to handle credit responsibly.

The general rule of thumb for credit utilization is to keep your utilization ratio below 30 percent. That means that your credit card debt should not exceed 30 percent of your credit limit. But this is where things get dicey. If you have multiple credit cards, does this mean that you should keep it below 30 percent of the credit limit on each card? Or should you keep it below 30 percent of the credit limit across all cards?

The answer, not surprisingly, is both. The percentage requirement applies to each individual credit card, as well as to your overall level of debt. The FICO scoring model tracks both total utilization across all accounts, as well as utilization within each individual account. FICO also takes into account other revolving credit accounts, such as installment loans, but these tend to be weighted less than credit cards.

Your credit utilization ratio: What not to do

The credit utilization ratio on individual cards is where even credit savvy cardholders often go wrong and inadvertently hurt their credit score. For example, consider a consumer with a total credit line of $30,000 across four credit cards.

At first, the person carries a $2,000 balance on a credit card with a $10,000 limit — well within the utilization recommendations. But then the person runs up $6,000 in charges and transfers the balance to another credit card with a 0 percent balance transfer offer and a credit limit of $10,000.

The total utilization ratio is now at $8,000/$40,000 — still below the ideal 30 percent total credit utilization. However, the utilization on the 0 percent APR card now stands at 60 percent — potentially creating a negative impact on the person’s FICO score.

FICO is mum about the relative contribution of each component, but it is highly likely that having one credit card with a high balance will have as great an impact on your score as having high total credit card debt in relation to the total available credit limit.

As a result, you are better off having small balances spread across several cards, rather than having a large balance on one card. Your credit utilization score is based on a snapshot of your credit utilization each month, so the good news is that your utilization ratio only affects your score for one month. Once you pay down the card balances to a lower utilization ratio, your score will go back up.

Finally, the ideal utilization ratio may be much lower than the 30 percent commonly believed to be acceptable. According to Bankrate.com, recent indications are that although 30 percent is okay, lower is even better. People with the best credit scores have utilization ratios as low as 7 percent.