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You and Your Credit Score

Hawaii EnergyIf you're out of school, you probably thought report cards could be left behind along with your gym shoes and locker combination. Not so, at least with respect to your use of credit.

Credit reporting agencies compile information for your credit report, which is the basis for your credit score. Your credit score is calculated by using a mathematical formula, called an algorithm, that predicts how much of a risk you are to a lender. The higher your score — the less risk you represent — the less you will pay to borrow money.

The most important factor in your score (35 percent) is how you've paid your bills in the past, with an emphasis on recent activity. The amount of money you owe and the amount of available credit makes up 30 percent of your score. How long you have had credit makes up 15 percent of the score, with the remainder based on new credit applications and the mix of credit. For more information, visit www.myfico.com and click on "Education."

Regularly check your credit report to be sure it contains accurate information. By law, you can get a free report from the three major credit reporting companies — Equifax, Experian, and TransUnion — each year. Order your free annual credit report online, at www.annualcreditreport.com or call 1-877-322-8228. You can order all three reports at once, but if you get one every four months, you can keep better track of the information being compiled about you. Each agency collects slightly different information.

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