Last month, I obtained my credit report from two of the three nationwide credit reporting agencies online and wrote about that experience in my May 18 post. Today, I requested the third one by phone so that I could compare that with the online process.

Many financial experts recommend requesting your credit report by phone, and my experience confirmed that thinking. While I had to answer a number of security questions for the online reports, I only had to provide identification information for the phone request.

To order your credit report by phone, call 1-877-322-8228. Even though there are three major credit reporting agencies, you request your report using one, centralized system.

English Only

The automated phone request service is in English only. The online request service is also only in English. According to a 2006 news release from Consumers Union (the publisher of Consumer Reports), the credit reporting agencies have taken the position that the law requiring them to provide free annual credit reports did not require them to provide the service in other languages. For individuals who are not fluent in English or who are uncomfortable with automated phone systems, the other option is to complete a printed form and mail it in. At least that way, you can take your time and get someone to help you with the instructions.

The Phone Experience

The phone request system is completed automated. For me, it worked without a hitch. It carefully repeats each piece of information you provide and asks you to confirm whether it understood you correctly. For example, when I had to state and then spell my first name, it captured that information correctly. Of course, my first name is only five letters so it may not be as challenging as a longer name.

I placed the call from my office; if I had called from my home, the process would have been even more streamlined. It begins by telling you that your report(s) will be mailed within 15 days, that you will be asked to enter information it needs to complete the request, and that you should not hang up until instructed to do so. Then the inquiries began. I was asked to say or enter:

• Whether I had a home phone
• If so, was I calling from my home phone.
• If calling from a different phone, what is the home phone number.
• What is the number in my street address, such as 5555 if my address is 5555 Home Avenue.
• My zip code

The system then "spoke" the last name for the person it had on record at that address, and asked me to confirm if that was correct. The, it "spoke" the first name – which was not me. I was prompted to speak and spell my first name. This was the first item for which I could not enter my responses using the numbers on the phone; I had to speak my response.

There were a few more questions before my request was completed:

• Have I lived at my current address for 2 years or more?
• Enter my Social Security number.
• Do I want the report to display only last 4 digits of my Social Security number, for security purposes?
• Enter my birthdate
• Do I want a printout designed for the visually impaired?
• From which of the three nationwide credit reporting agencies do I wish to receive a report: Equifax, Experian, and/or Transunion?

While it took several minutes to work my way through the request, the system was easy to understand. If I entered something wrong, it was easy to correct since I was asked to confirm each piece of information before moving on to the next item. The instructions were clearly spoken, although it had a little trouble pronouncing my last name and the name of the town where I live.

This was a very different experience from requesting my credit reports online. It was easier because I did not have to answer any security questions, but someone who hates automated phone systems might be turned off by it.

Whichever way you prefer to check your history, please take advantage of your right to obtain a copy of your credit report from each of the three credit reporting agencies each year.

• apply for a credit card from a different financial institution;
• apply for a credit card at a store that you like to shop at;
• if you have a phone or utility bill, be sure that it is in your name (and not always in your roommate's name);
• consider asking your parents to co-sign on a loan; or
• ask your financial institution about a secured credit card.

Make at least the minimum payment due each month and never be late. Delinquent payments and payments that don't meet at least the minimum contractual amount will have the most immediate, negative impact on your credit report and credit scores.

2. Keep your balances low.

Keeping your balances low as compared to your available credit limits is a sign of good credit management and shows lenders you are a good credit risk. Your utilization rate, also called your balance?to?limit ratio is a key component to credit scores.

3. Apply for credit wisely.

Do not apply for multiple accounts in a short period of time. Taking on large amounts of debt in a short time is a sign of high credit risk. Apply for credit when you need it, and only in the amount you need. Just because credit is offered, doesn't mean you have to accept it.

If you have information on your credit report that is wrong, you have the right to have it corrected. Follow the instructions given in the credit report to correct inaccurate information. Keep written documentation of information you send to the credit bureaus.

For more information on managing your credit history and credit cards, go to University of Illinois Extension's website, Credit Card Smarts

When the FACT Act gave us all the right to get a copy of our credit histories once each year from each of the credit reporting agencies, I was sure I would get mine every year. I've gotten lazy! I decided today was the day to correct that, and I thought I'd share some of my experiences with you. I had a few surprises about the process and about the information on my reports. Maybe it's just been so long I'd forgotten these things, but I thought clueing you in about these things might make getting your report a more comfortable process.

Although you start the process at www.annualcreditreport.com, you will be linked to the individual credit reporting agency websites to obtain your report from each one. It's up to you whether you get a report from one, two, or all three of the reporting agencies. You can always come back and obtain the others whenever you'd like. The names of all three are presented, in no particular order, and you simply click the radio buttons by the ones you want to obtain.

You enter your personal information just once, on www.annualcreditreport.com. When you move from there to the individual credit reporting agency website, you will go through a series of security questions. The questions from each company will be different, and are apparently based on the data they have on file about you. Each agency asked a combination of questions about loans I have or had as well as personal identification information, such as where I have lived. The intent, obviously, is to make sure that it's really you accessing your credit file.

One provider encouraged me to print my credit file immediately, as I would not be able to after I closed that online session. Actually, I have online access for 30 days as long as I took the time to set up an online account. If so, I can print it anytime during that 30 days. But setting up the online access was a little intimidating. I had to agree to a 19-page product agreement and terms of use that is mainly aimed at purchasers of paid services. Also, I had to check an opt-out button to prevent my information being shared with third parties. (Maybe I should have left the box unchecked so I could tell you what kinds of solicitations and advertisements I received in the next few weeks. But I just wasn't willing to do that, even for you.)

Then there were a few surprises in the credit reports themselves. One showed three promotional or marketing inquiries – the ones that mean the credit reporting agency shared your contact information with lenders who wanted to send you pre-approved credit offers or other offers. These inquiries do not affect your credit score.

This was a surprise because I permanently opted out of having my contact information released for marketing purposes by calling1-888-5OPTOUT, then signing and returning the Permanent Opt-Out Election form they sent me for the permanent opt-out. You can also opt out online.

The other surprise was how much old information (older than seven years) was in the reports. Most negative information cannot remain on a credit history for more than seven years (ten for bankruptcies), but there isn't any legal limit for how long positive information can remain. Payment history wasn't shown for these accounts, but other information was reported just as it is for current, open accounts: date opened, amount borrowed; whether the account was joint, individual, or authorized user; monthly payment, etc.

I was pleased to see that I could dispute incorrect information immediately online. I was not as pleased to see indications that I did not have certain options or services, which the credit reporting agency hoped to sell me.

I viewed and printed my credit history from two of the reporting agencies. I plan to request the third one by phone, so that I can compare it with the online experiences. I'll let you know about that in a future post.

Please click the comment button below, and tell me about your experience obtaining your credit report. Let's learn from each other!

How long has it been since you saw a copy of your credit history? If it's been more than a year, it's time to check it again. Your credit report changes constantly, with lenders reporting new information each month.

You can get a free copy of your credit report once a year from each of the three credit major bureaus. (Sorry, but you'll have to pay to get your credit score.) To get your report, you will be asked security questions about personal information that only you will know to verify your identity.

There is a central service to obtain your free annual credit report; do not contact the credit reporting agencies directly. You can do it by phone, online or by mail:

Phone: Call 877-322-8228 (toll-free)

Online: http://www.annualcreditreport.com

Mail: Print out the request form from the website above. Send to: Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281

If you were denied credit or any benefit based on your credit history, that also entitles you to a copy free from the agency who provided it - but only if you request it within 60 days. Victims of identity theft, those on welfare, and the unemployed can also get a free copy.Contact the credit reporting agencies directly for these requests.

Equifax – 800-685-1111 - www.equifax.com

Experian – 888-397-3742 - www.experian.com

TransUnion –800-916-8800 - www.transunion.com

What's in A Credit Report?

There are several kinds of information in your credit report:

• Personal Information - your name, addresses, social security number, birthdate, employers. This information is used only for identification purposes.
• Account History – a record of all of your credit accounts. This section shows how long you have had the account, the credit limit or the original amount of the loan, the current balance, the number of times you paid on time, and the number times you were late.
• Inquiries- the names of creditors who looked at your credit report within the past two years. When you apply for credit, those inquiries are 'hard" inquiries. Too many of these inquiries can hurt your credit score. You may also see "soft" inquiries listing companies from whom you have received offers of credit, such as pre-approved credit card offers. Soft inquiries do not affect your credit score; lenders who check your credit history do not even see them.
• Consumer Statement - you can provide a 100 word statement explaining information on your account or extenuating circumstances such as job loss.
• Public Records –legal items such as bankruptcies, foreclosure, and judgments from state and local court records.
• Alert Messages – fraud alerts or "Active Duty" alerts for the military help prevent you from being a victim of identity theft.

Dispute Incorrect Information

Check your credit report for error. Maybe the report shows an account that isn't yours, or shows a balance on an account that you already paid off. Common mistakes include information about someone with a similar name, information for an ex- spouse's account that your name was never on, or a closed account being shown as open.

If there are errors, file a dispute with the credit bureau that issued the report. Follow the instructions provided on the credit report. If you received your credit report online, you will probably file the dispute online. State the error and ask for an investigation. The credit bureau legally has 30 days to investigate and correct the information. If there is an error, all three credit bureaus will be notified. Your credit report then should be corrected.

This question frequently comes in my workshops, so it is obviously an area of confusion.

The short answer is, No, making a payment on an old debt does not re-set the seven year clock for being reported on your credit history. However:

• It happens sometimes, whether it's supposed to or not.
• Making a payment could re-start the statute of limitations, which is an entirely separate issue from how long it shows up on your credit history.

The Seven Year Rule

Most negative information can only be reported for seven years. A debt cannot be "re-aged" or given a new start date because you made a payment. Even if the debt is sold from one debt collector to another, the original delinquency date does not change and the seven-year clock does not reset.

If you see a debt on your credit history that is more than seven years old, you should dispute that information with the credit reporting agency to get it removed.

There are some exceptions to the seven-year rule. That time limit doesn't apply for certain kinds of information or to credit reports provided for certain purposes. According to the Federal Trade Commission, which is the regulatory authority on this subject:

A credit reporting company can report . . . bankruptcy information for 10 years. Information about an unpaid judgment against you can be reported for seven years or until the statute of limitations runs out, whichever is longer. There is no time limit on reporting information about criminal convictions; information reported in response to your application for a job that pays more than $75,000 a year; and information reported because you've applied for more than $150,000 worth of credit or life insurance. There is a standard method for calculating the seven-year reporting period. Generally, the period runs from the date that the event took place.

Statute of Limitations

Each state has laws that limit how long a creditor can sue you for nonpayment. These rules are statutes of limitations. The number of years varies from state to state and depends on the type of debt. Several sources that I read indicated that making a payment, or even agreeing to make a payment, could re-start the statute of limitations and re-start the clock for how long lenders could sue you. Even if the statute of limitations has expired, you still owe the debt, but the lender cannot sue you to collect.

The best overview of this subject that I found online was done by msn.com.

Conclusion

As I said at the beginning, the short answer is "No,' making a payment on an old debt does not change the seven-year period for being reported on your credit history.

Since it could re-set the statute of limitations check with a credit counseling organization or get legal advice if you're wrestling with this decision. To find a credit counselor, try the National Foundation for Credit Counseling or check the list of credit counselors approved by the Department of Justice to provide the financial counseling required for people filing bankruptcy.  http://www.justice.gov/ust/eo/bapcpa/ccde/cc_approved.htm). For legal assistance in Illinois, check Illinois Legal Aid to locate an agency that can help you. Just make sure you understand how the rules apply in your particular situation and location.

I'm sure you've heard many a time that you should check your credit report regularly to be sure that it accurately represents your credit history. In fact, you need to check your reports from all three credit bureaus (Experian, TransUnion, and Equifax) as they are likely to be different from one another.

And, you probably know that you should go to www.annualcreditreport.com to see your free report from each of the three bureaus once a year. Whether you're looking for a job right now or not, consider this your annual nag from me to go check your reports! Look for any mistakes and then act to have mistakes corrected. Your credit report influences the cost of insurance, interest rate on loans, and whether it's difficult to contract for services such as utilities, phone or even renting an apartment.

However, in Illinois as well as a few other states, your credit report and credit score can no longer be used when you apply for a job. The Employee Credit Privacy Act went into effect in January. Under the act, Illinois' employers may not use a person's credit history to determine employment, recruiting, discharge or compensation. According to a press release from Governor Quinn's office, under the new law, employers may access credit checks under limited circumstances, including positions that involve: bonding or security per state or federal law; unsupervised access to more than $2,500; signatory power over businesses assets of more than $100; management and control of the business; access to personal, financial or confidential information, trade secrets, or state or national security information.

If you're applying for jobs, you also need to know that by federal law you have the right to more than one free credit report per credit bureau per year. For example, if you are

• Denied credit, insurance or a job,
• Unemployed and plan to look for work within 60 days,
• Receiving TANF assistance, or
• Your report is inaccurate due to fraud such as identity theft,

then you can get an additional free credit report. You need to contact the credit bureaus directly for these reports.

It's tough to find a job these days. Knowing our rights in tough times is important. For more information about credit card reports, visit U of I Extension's website Credit Card Smarts.

You have probably seen the Capital One commercial that asks the question "What's in Your Wallet?" To my surprise, many people are walking around with a lot of information that should not be in their wallet. This summer when I was doing a credit workshop with young adults ranging in age from 18-24, I asked "by a show of hands, how many of you carry your social security card in your wallet/" Not surprisingly, quite a few carried their social security card around. Those who knew better immediately shouted out, "you shouldn't carry your social security card in your wallet because you may become a victim of identity theft." I was pleasantly surprised to hear that a portion of the students knew that.

One of my colleagues, Susan Taylor, has an activity that she does with her program participants. She has them make a list of what they think is in their wallet. After completing the list she has them to actually look in their wallets and write down what they find. To her surprise, one of her participants was carrying around his discharge card from the military. He had been discharged honorably from the armed forces many years ago. Because his discharge took place during a time that we innocently placed the social security number on the card, had his wallet been stolen, although his social security card wasn't in the wallet, his social security number would have been easily accessible to a criminal (via the discharge card).

In 2009, it is estimated that 11.1 million people were the victims of identity theft. The total fraud is estimated at about $54 billion. Although identity theft can take place in various forms, the most prevalent way is usually via the items contained in our wallet. The Identity Theft Resource Center has a list of items typically found in many Americans' wallets. The list includes:

· Your Social Security card **

· Military ID card **

· Medicare or MediCal card **

· Social Security cards (or numbers) for any other family members, i.e. spouse, children

· Social Security number (SSN) printed on card

· Driver's license

· Credit cards (itemize)

· Vehicle registration papers

· ATM/ Debit cards/ Bank cards

· Health insurance/prescription/dental benefit card - Did it have your SSN on it?

· Professional licenses (doctor, nurse, etc.)

· Employee or student ID card - Did it have your SSN on it?

· Green card or immigration papers

· Passport

· Any bills/statements you may have been carrying (i.e., telephone, electricity, credit card)

· Birth certificate

· Store club cards (supermarket, Sam's Club, Costco)

· AAA or other auto insurance card

· Library card

· Video store card - (i.e. Blockbuster)

· Health club card - Did it have your SSN on it?

· Discount cards or annual passes (movie, amusement parks)

** Government-issued card with Social Security Number printed on it

One item they left off the list that is likely found in your wallet is your checkbook. When a theft has access to your personal information, they can do a lot of damage. To help alleviate some of the stress of figuring out what information is kept in your wallet, Susan gives her program participants homework. She provides them with a handout that asks for card information and contact numbers. As the information changes, the list should be updated. This list should be stored in a safe place such as a fire-proof safe.

I know most of you know if your wallet was stolen to alert the police, your banks, credit card companies and the credit bureaus to name a few. Susan says most people don't think to alert their local library. Some victims have been shocked to discover that their library card was used to check out books, CDs and DVDs. During the next tax filing season, it is also a good idea to check with the IRS to verify that no one else has worked under your social security number. I have heard horror stories of people applying for unemployment and being told that the system currently shows them as working.

This blog was written to give you some ideas of safety measures you can take to lessen your chances of becoming a victim of identity theft. If you are carrying around your entire financial lifeline in your wallet, you should do one of two things: 1) take out the cards/ information that you don't use or 2) make sure you keep records of all information kept in your wallet so you know who to contact in case of emergency. So, now I ask you "What's in Your Wallet?"

If you would like more information on identity theft, check out these websites:

Thrifty Living

FTC

Identity Theft Resource Center

I hear them all the time on the radio – ads proclaiming:

As a result of the American Reinvestment Act, if you have over $10,000 in credit card debt, you are entitled to settle for pennies on the dollar...

or something to that effect. It may sound pretty tempting. And the ads play on consumer outrage about bank bailouts, stating:

Banks received billions of dollars in bailouts, and they must use that money to settle your debts...

It sounds too good to be true, which sets off warnings bells from my internal fraud-alert detector. But from the ads, I couldn't tell what the catch was. So I did a little digging.

Consumer Reports gives an overview of the fees charged by debt settlement companies: "Regulators say that under the typical arrangement, companies charge up-front fees totaling 15 percent of the debt to be settled, a monthly service fee of $50 and if they do reach a settlement, a contingency fee of 20 percent or more of the amount they've allegedly saved. And the Internal Revenue Service might consider forgiven debt to be taxable income. "

That sounds pretty expensive! But I wanted to know more.

The Government Office of Accountability (GAO) did an undercover operation in which they contacted 20 debt settlement companies, posing as consumers seeking deft relief. Their experience confirmed that many of these companies are engaging in the deceptive and costly business practices reported by consumers:

• The companies collect fees for their services before any debt settlement has been negotiated with creditors.
• The companies collect monthly payments from the consumer, purportedly to build up a lump sum to use in negotiating partial payment of debt with lenders. But in several cases, the first several payments go entirely to the debt settlement company for fees, rather than toward that lump sum.
• The companies advise the consumer to stop making payments on their credit cards and loans – even accounts on which the consumer was still current – resulting in substantial fees and interest that increased the amount of debt owed.
• Companies claimed success rates in settling clients' debt of as high as 100%, although the Federal Trade Commission and others have typically found that less than 10% of clients complete these programs. (Consumer Reports says that the number was just 2% in a 2004 court case brought by the FTC against one debt settlement company.)

Even if a consumer completes the program, it may not save them any money on the debts they owe. One example cited by the GAO describes a couple whose fees and payments to the debt settlement company totaled 140% of their original debt. That means, if their debt at the time they contacted the debt settlement company was $10,000, they ended up paying $14,000. Some savings!

And these debt settlement programs are in no way associated with any legislation or government action dealing with the country's economic problems.

So what can you do if you're drowning in debt?

For one thing, you can try negotiating with creditors yourself. For tips on doing that, check Talking with Creditors, a Getting Through Tough Financial Times fact sheet from University of Illinois Extension.

Or, you can seek help. There are some reliable sources of assistance. The National Foundation for Credit Counseling (www.debtadvice.org) can connect you with a non-profit agency that provides credit counseling. They will work with your creditors to set up a repayment plan. You'll make a single payment to the credit counseling non-profit, who will in turn make the negotiated payments to your creditors. Fees are usually determined on a sliding scale based on your financial circumstances. According to Consumer Reports, the enrollment fee should be no more than $25 and the monthly fee should be no more than $50.

If it's mortgage debt that is your problem, you'll want to talk to a certified housing counselor. Locate one by going to http://www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm.

I'd be interested in hearing any experiences you've had negotiating with creditors, dealing with debt settlement companies, or otherwise handling debt that's become a burden. Click on my name below, and tell me about it!

The holiday season is upon us. Believe it or not, Thanksgiving is here and Christmas, Hanukkah, and Kwanzaa are right around the corner. This is usually the time that some of the most sensible people throw caution to the wind and charge it! Amidst all the joyous festivities, many unfortunately rack up a ton of debt. In case you didn't know, on average it takes about nine years to pay off a $1000 balance at 18% interest. That's 2018! Is the sweater really that cute?

Recently, I have received a lot of requests for credit management workshops. I normally talk about what a credit report is. I always jokingly say that a credit report is a "grown up report card." I usually get a lot of nodding heads and nervous laughs. I think most people know that it's true. We are judged based on our current and past credit history. I then ask why we need credit. Some of the responses I hear include: to buy a home, a car or get a job; all of these answers are correct. With the shortage of "good jobs", something like a blemish on your credit report could be the difference between getting the job and remaining unemployed.

Next, I normally talk about why everyone should check their report. I get a variety of answers. There are a number of reasons to check your credit report. The best reason I can think of is to make sure the information on the credit report is correct. Besides verifying accounts and balances on file, it is just as important to verify your name, date of birth, social security number, current and past addresses and employers. If any of this information is incorrect, it's probably a good idea to dig deeper and file a dispute, if necessary. I always suggest to workshop participants to get a free copy of their credit report from all three credit bureaus because there is always the possibility that the information is not the same. To obtain a free copy of your credit report, visit www.annualcreditreport.com.

Towards the end of the workshop, I usually talk about the components that make up the credit score such as payment history, amount owed, length of credit history, new credit, and types of credit. If you are holiday shopping and opening credit cards at every store you patronize to get the discount on your purchases, beware that it might cost you a dip in your credit score and inevitable a higher cost for borrowing money.

If you want to keep your spending under control during the holidays, consider establishing a holiday budget. The budget can include gifts, food, decorations and supplies, holiday cards, and other miscellaneous items. Lists will be an important part of creating your budget. Create a list for holiday gifts that include what you plan to purchase, the estimated cost and where you plan to purchase it, if possible. This will help you stay focused during your shopping trip. Your food list should include everything on your menu, including ingredients. Check your refrigerator and cabinets before your shopping trip so that ingredients are not purchased unnecessarily.

Finally, reflect on the year we have had. It's been a pretty rough time this year. We have worried about plummeting stock portfolios, foreclosures, and our healthcare coverage. Now, it's time for us to be thankful for the things that we have. If your 401(k) took a dive, be thankful you even had one; many employees don't. If your home went into foreclosure this year, be thankful you had somewhere else to go; someone ended up homeless. Finally, if your HMO or PPO wasn't the greatest, at least you had coverage; millions of Americans are without any coverage at all. During this holiday season, be thankful for the people and the things that are important to you. In the final analysis, that's what really matters. Have a wonderful Thanksgiving. Happy Holidays!!!

With the changing economy, people are asking me about credit scores but the questions are different than they were a year ago. Maybe you've been wondering about your credit score -- and what affects it -- too.

Generally when people talk about credit scores they are actually referring to FICO credit scores -- the main provider of credit scores. Consumer Reports Money Advisor Newsletter recently provided information about FICO credit scores that reflect the type of questions I'm hearing. Lets take a look at some of these questions:

What happens to my credit score if a lender lowers my credit limit on a credit card?

Probably not much. As reported by Consumer Reports, a study done in 2008 found very little change in credit scores for people whose credit limits had been cut.

Will paying down or off my credit balance hurt my credit score?

Actually, paying down balances is one of the best ways to improve your credit rating. However, you may not want to completely zero the account and then not use the credit at all – a little bit of activity on the credit card may be beneficial.

Karen Chan's recent blog post, Should I cancel this credit card? Will it hurt my credit score? talks about this more.

Does having a sub-prime or adjustable rate mortgage hurt my credit score?

Not at all. The type of mortgage loan is not in the FICO score calculation. What is important is that you keep up with payments.

Most people have heard the commercials for debt-relief where someone promises to reduce the amount of debt you need to pay. Will entering into a "partial payment agreement" with a debt-relief firm affect my credit score?

Most likely, yes. Even though this may be a much better solution than not paying your bills at all, it will still count as a negative on your credit score. However, even though your score may initially dip, working with a credit counselor may help you get your finances in order. As your payment history improves, so will your credit score.

If you do decide to work with an agency to restructure your debt, I would suggest you work with a nonprofit agencies with counselors who are members of the Association of Independent Consumer Credit Counseling Agencies or the National Foundation for Credit Counseling. Also check with your local Better Business Bureau. Be sure you understand the fees and costs to you before signing any agreements.

Absolutely yes. The FICO scores gives equal weight to late payments no matter the type of loan.

While it's important to think about how your credit use will affect your credit score, remember to keep your financial goals in mind when strategizing about credit use. Using wise financial behaviors will ultimately help your credit score.

This is probably the most common question I get about credit. A person has a credit card she's no longer using, and she's thinking about canceling it. But because we're all so concerned about our credit scores today, she wants to make sure that cancelling it won't hurt her score.

Years ago, the recommendation was clear: cancel any credit card you aren't using. But today, the issue is more complex. Whether canceling a credit card will hurt your credit score depends on several things.

Amounts Owed: Utilization Ratio

Part of your credit score (about 30%) is based on "Amounts Owed." One of the factors considered here is, What proportion of your available credit lines are you using?

If you have any individual credit card charged up close to the limit, you'll lose points because your "usage ratio" is too high. And you'll lose points if, looking across all your credit cards, you're using too much of the combined credit limits. What's too much? Transunion, one of the three major credit reporting agencies, says that the average proportion of balances to credit limits is 34%, so you want to be substantially below that. I've heard that less than 10% should be your goal.

Canceling the card could hurt you, because your utilization ratio may go up when you lose that credit line. This is especially true if your card has a high credit limit and you charged little or nothing on it, .

Lots of people don't realize that the credit scoring algorithm can't distinguish between a balance that you're carrying from month to month, and one that you'll pay off when you get the bill. If you're applying for a mortgage or a new car loan, don't put a big charge on your credit card even if you plan to pay it off before the due date. The credit card might report to the credit bureau on a day when that huge balance is on your card, making it look like you're carrying a large balance in relation to your credit limit.

How much this will affect your credit score will depend on the other information in your credit history.

Amounts Owed: Number of accounts

You know that having too many credit cards is not a good thing; so does your credit score. This is another factor in the "Amounts Owed" part of calculating your credit score.

The average credit report shows 4 or 5 bank credit cards (as opposed to store credit cards). A good goal is to be no higher than that.

Length of Credit History

Length of credit history determines about 15% of your credit score. You gain points for having a long credit history. Although negative info can only stay on your credit history for seven years, good stuff can stay on forever. So my credit history shows that I've had one particular credit card since 1990. Only seven year's worth of payment history is reported, but the date I opened the account will stay there as long as I have the account. That earns me a some points on my credit score. Canceling that account could take away those points, especially if my other credit cards were opened much more recently.

Final tip

Your credit score is simply a reflection of all the information that's in your credit history. Rather than paying to get your credit score, or paying for a service that lets you access it, start by getting a free copy of your credit history from each of the three major credit reporting agencies. Use the REAL authorized website to get them, at www.annualcreditreport.com. Make sure all the information is correct, and follow the instructions on the report to dispute incorrect entries. Paying your bills on time is the single most important thing you can do to have a good credit history. And keeping your balances low could be the 2nd most important thing. Take care of your credit history, and your credit score will take care of itself.

Update 7/28/2009

Thanks to Jeff Rose, this week's host of the Carnival of Personal Finance for selecting this post for inclusion in the Carnival. Check it out, and see what other financial bloggers are talking about on his Good Financial ¢ents blog.