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Do you use credit cards? Would you like to own a home or a car someday?

If you want access to those and other loan products, you’ll likely need a decent credit score. The better your score, the more affordable the loans will be.

Even if you’re not concerned with the ability to get loans or the best credit card terms — should you still care about your credit score? Yes, because it’s based on your credit history, which can be used for more than loan decisions.

Understanding Credit Scores

Lenders use credit scores to determine whether or not you’re a good credit risk. If you have a low credit score, they may charge you a higher interest rate for the loan. A good credit score can lower your interest rates, which means you spend less money over the life of the loan.

There are hundreds of credit scoring models, but no matter the scoring model, you’ll want to focus on five behaviors to build a good credit history: your payment history, debt usage, mix of credit accounts, average age of accounts and number of credit applications. These factors carry different weights, but making loan payments on time is the most important of them. You can see how the different facets of your credit history impact your score with a free Credit.com account, where you can also make a plan to address your problem areas.

A Good Score Comes From a Good Report

Credit scores are risk assessments, but credit reports provide more detail on your credit standing. Some people feel strongly that credit reports shouldn’t be a factor in non-credit decisions, but at the moment, a variety of people can request your credit report, including future employers, landlords and insurance underwriters. In the case of an employer credit check, you have to give permission before they pull your credit.

In those situations, chances are you want to make a good impression, which should motivate you to maintain a good credit standing, even if the opportunity to get better interest rates does not.

Because your credit report determines your credit score, it’s important to pay attention to it. You’re entitled to a free credit report every year from each of the major credit reporting agencies. By pulling your free reports, you can look for any mistakes that are hurting your credit score, and any accurate but derogatory items that you need to address.

Achieving a High Score

It can sometimes be very difficult to establish a solid credit history, especially if you’re recovering from financial hardship. It definitely takes some patience. Work toward goals you can reasonably attain, and know that small fluctuations in scores are very common. Don’t go crazy trying to achieve perfection, but you should definitely have something to work toward.

More on Credit Reports and Credit Scores:

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