Taking Charge of Your Credit

What's in Your Wallet?

Besides baby photos, a library card, and old receipts, you probably have a handful of credit cards stashed in there. But are you playing these cards right to get the best rates and rewards possible? And how will the way you use these cards now affect your payments down the line on a new minivan or home? We've got answers to these and other questions for once and for all.

Will Late Payments Hurt My Credit?

Yes! "One late payment is probably okay, but when you get to two or more late payments or one totally missed payment, it's going to cost you some points on your credit score," says Jeff Schumacher, senior vice president at Citi Cards. (For more on credit scores, see the next question.) Always allow five to seven business days for your check to get through the mail, or better yet, pay your bills online: When you get your statement, log on to the credit card's or your bank's Web site and schedule an electronic payment -- to arrive right on the due date if you like.

What Is a Credit Report?

When you apply for a credit card or loan, the company wants to know how much of a lending risk you are, so it contacts up to three credit bureaus (TransUnion, Equifax, and Experian), each of which gives it a credit report and a credit score. The credit reports show your borrowing history, and it's a good idea for consumers to check their reports at the three bureaus now and then. That'll allow you to catch clerical errors (credit-ruining inaccuracies ranging from typos to data about loans that don't actually exist are stunningly common) or to spot if someone has stolen your identity and is racking up debt in your name. "Plus, a new federal law allows consumers to get free copies of their credit reports once a year, so there's no need to pay a service to check it for you," says Joe Ridout, consumer services manager at Consumer Action, a nonprofit educational agency. For free reports from all three bureaus, log on to annualcreditreport.com.

Most lenders pay more attention to the bureaus' other information, your credit score, which is a computer-generated rating -- from 300 to 850 -- based on the information in your report. The higher that number, the less of a credit risk you're deemed to be and the better rates you'll get on everything from mortgages to car loans, home equity lines to credit cards. Many factors contribute to your credit score, including the length of your credit history (longer is better), how much you owe (less is better), and how many requests for new credit you've made recently (fewer is better). "But the biggest factor is whether you pay your bills on time," says Robert Hammer, a financial consultant who advises the credit card industry.