Your 5-minute guide to credit scores

By MSN Money staff

Your credit score is likely the most important three-digit number in your life.

Your score affects how much you pay for credit, and it can affect other bills you pay, where you live and where you work.

• Banks and credit card companies review your score when deciding whether to extend you credit and how much interest to charge. (See "Lifetime cost of bad credit: $201,712.")
• A high score can lead to lower car- and home-insurance premiums, a deposit waiver from utility companies and a better service package from the cell-phone company.
  

  Impact of the Credit CARD Act on you

• Many landlords check credit scores before allowing you to sign a lease.
• Many employers do credit checks on prospective employees.

With so much at stake, it's wise to find out where you stand and take steps to raise your score if it's below 700, particularly before you apply for a mortgage or other loan. Above 760 and you're in the upper echelon. A score below 620 tells people you're not a good risk and dooms you to credit denial or subprime interest rates. (See "Raise your credit score to 740.")

What is a credit score?

The three major credit-reporting agencies -- Equifax, Experian and TransUnion -- use software developed by FICO (formerly Fair Isaac) to rate your risk for assuming debt based on your credit history. The result is commonly known as a FICO score. A recent update to the scoring formula provides consumers with a few advantages -- and some serious new risks. (See "The new math of FICO credit scores.")

The score is based on five factors, including payment history, the amounts you owe and the types of credit you've obtained. Personal information like income, occupation, age and marital status are not considered. (See "Credit bureau move creates 'secret' scores.")

The FICO score can range from 300 to 850, although very few reach that pinnacle. Each credit bureau may assign you a different score, based on the information it receives from creditors. (Take our survey to get a free credit score estimate.)

You generally have to pay to get your credit score. You are legally entitled to one free credit report each year from each of the three credit reporting agencies. (See "How to get a free credit report.")

• To watch for errors and identity theft, stagger your requests and get a report from a different bureau every four months. (See "Your 5-minute guide to protecting your identity.")
• Go to AnnualCreditreport.com to order a free report. Make sure you access the right Web site. Impostor Web sites abound.

Continued: It pays to pay on time

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