Credit scores are one of life’s great mysteries. The short explanation is that a credit score is a number used to measure someone’s creditworthiness. But that only raises more questions about how they calculate the score, what affects it, how to improve it, who sees it and scams to watch out for. Whew.

So what exactly do they mean by creditworthiness? What it refers to is whether you’re a credit risk to lenders, credit card companies or other firms (such as property management companies that you’d be paying rent to). The factors used to determine creditworthiness are also the ones used to calculate your credit score. Your past credit history is used to estimate how well you handled your loans and debts in the past. Here are some of the things they’ll look at:

Do you have an established credit history through credit cards or loans? (Many creditors don’t want to be your “first” lender because you have no track record).
Payment history — Have you missed payments or been late with payments?
Are you apt to default on your debt?
How many credit cards or loans do you currently have?
How long have you had these?
What is your total credit limit (e.g. how much can you charge on each credit card – even if you never reach that limit)?
Do you have any other regular payments such as child support or alimony?

Credit scores are also sometimes called FICO scores — for Fair, Isaac and Company who originated the reporting service in 1989. There are three main credit bureaus – Experian, Equifax and TransUnion — and each calculates a score for you based on criteria such as those listed above.

Even if you know very little about credit scores, it goes without saying that the higher the score, the better your credit. And the better your credit, the more apt you are to get approval for a loan or credit card. In the case of debts such as a mortgage or car loan, a higher score will also result in a lower interest rate. (Although I’ve always wondered about this – does it really make sense to increase the payments of people who are already having a tougher time making their monthly payment??)

Credit scores range from 350 to 850. Lenders may set their own standards as to what number they’ll accept, but in general 710 is thought to be a good credit score, with anything over 740 or so being considered excellent. People with scores of 600 or lower are generally considered poor risks.

Here are some ways to improve your credit score:

Make your monthly payment on any long-term loan – and do it on time! If you’re late by a day or two and this is unusual for you, call the lender and ask if they’ll “excuse” this tardiness and not report it.
Pay your credit card bills on time. Pay off the balance if possible, but if you can’t do that, be sure to make the minimum payment by the due date.
Do not close credit cards that you don’t use. (Although it’s okay to cut up the cards if you don’t want to be tempted to use them). The longevity of a credit card is factored into your credit history. The longer you’ve had it the better. By the same token, don’t open new accounts to get free gifts or airline tickets and then close them.
Keep your credit card balances low. Easier said than done, right? Yes, but try to pay as much as you can each month so interest rates don’t mount up. And don’t charge any more on that card unless absolutely necessary. Experts advise, “If you can’t pay cash, don’t buy it!”
Avoid making small charges on a lot of cards. If you have $25 on one card and $40 on another, the credit reporting companies will see this as a lot of open balances. Instead, choose one or two cards to use for all your charges. Just don’t close the other ones!

And finally, beware of scams! As if understanding and managing your credit score isn’t hard enough, scammers are making it even harder! First, you should know that everyone is entitled to one free credit report each year. You’ll see the report, but may have to pay extra to see your credit score. There are several other reliable websites that offer free reports as well. These include creditKarma.com, creditsesame.com, and mint.com.

The problem with signing up on these sites is not the company itself, but the possible phishing scams that your interest in the site might attract. For instance, if you get an email saying your score has changed and you should click the link in the email, don’t do it! If you think this might be true, go to the website of the company you signed up for and contact them directly.

So here are a few other things to beware of after you get your score from the reputable site:

Check the domain name on any email you receive. Make sure the email is from the company you’ve done business with.
Never give out your credit card information to people who contact you by email or phone.
Don’t click on any attachments or links in an email. Go directly to the site they claim to be (or that you know).
Don’t enter personal information if the site isn’t secure. Look for web addresses starting with https or shttp.

Make it a habit to check your credit score once a year and then improve it or keep it as high as possible. That will keep you in good shape for your financial future.

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