The average FICO score recently hit an all-time high for Americans. FICO is the most used credit score in the country, and the average is now 706. FICO scores can range from 300 to 850, and a good score is usually above 700. People who have a score above 760 are considered excellent.

Credit scores are important for a number of reasons. First, they may determine whether you get a loan. People with a higher score often get a lower interest rate. This can make a big difference in the final cost of a purchase. Credit scores also are sometimes used by insurance companies and when you apply for a job.

People with good credit are often considered more responsible and less likely to create undesirable outcomes. Having a good score is an important part of managing your financial wealth.

The higher scores now are probably a reflection of the low unemployment rate. Jobs are plentiful and there have been some upward wages because of a shortage of good employees. There also was a recent change that stripped all civil judgments and tax liens from credit reports.

The No. 1 factor that affects your credit score is paying bills on time. You need to make at least the minimum payment by the due date. Hopefully, you pay a lot more than the minimum on credit cards because it can take years to pay off at only the minimum.

Credit scores also depend on the amount of utilization of your credit limits. If you have a $5,000 credit line, people with the highest scores are using only about one-third of their line. This applies mostly to credit cards and lines of credit. Mortgages are going to be utilized much more at the beginning of the loan and have a much longer maturity.

If you have a credit card that you are no longer using, it may help your score to keep the account open. This improves your utilization ratio. Opening new credit lines hurts your score for a short time.

The reason these factors are considered is lower utilization indicates your finances may be in better condition and you are less desperate. Among factors not considered when determine your credit score is the amount of money you earn and your net worth.

You should check your credit report every year at the official government website www.annualcreditreport.com. This is free to do every 12 months, and you can see your credit history from all three big credit bureaus. This is especially important because of all of the identity theft that we hear about almost every week.

Your credit report will show what accounts have been opened in your name. If there are any listed that you did not open, notify the credit bureau immediately.

Managing your credit is an important financial activity that makes your life less stressful. Do it regularly and make it a routine part of your financial life.

Gary Boatman is a Monessen-based certified financial planner and the author of “Your Financial Compass: Safe passage through the turbulent waters of taxes, income planning and market volatility.”

To submit columns on financial planning or investing, email Rick Shrum at rshrum@observer-reporter.com.

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