Keeping track of your credit score

By: Michelle Carolla | SCNow
Published: April 11, 2009

We're a nation of falling credit scores. It's just one more trickle down effect of the recession. But ignoring the importance of your credit score can end up costing you thousands and thousands of dollars in unnecessary interest.

Borrowing money, whether in the form on a credit card, a mortgage or even a car paymehnt cost you more if your scores is even a few points below the average good level of 700. Drop to the 600's and you will spend thousands more for a car or even hundred's of thousands for a house during the life of the loan.

So to protect your score you must at least make the minimum payments.

"I think most people can still afford the minimum payments. Minimum payments are typically very reasonable, 5% of their debt. If they don't make that payment, not only is their debt piling up, but the credit score will determine which means the interest rate will end up rising in the future," says Yoav Wachsman, economics professor at CCU.

So if you just can't make your payments here is what you need to do, you should call your creditors right away and tell them you're financial situation. They can work with your to either lower your minimum payment or even do a credit forbeance for several months allowing you to postpone your payments.

You can also ask them to lower your interest rate. Companies don't want to cancel your card so play hard ball and look into consolidating your bills by transfering high interest cards to low or not interest cards. Then set a new budget.

"We need to learn to live within our means and what people need to do is sit down and realize what expenses they really have to make, what are their true necessities for themselves and their families and what are some of the things they can do away with."

If your score is 700 or above your a first tier borrower and will get the best interest rates, the higher the better.

A score of 670-700 puts you in the second tier and 620-670 is the third tier.

Below 620 most mainstream lendors won't touch this score.

The FICO score is a tough computer generated equation, but the highest contributors to your score are your payment history and your dept in credit limit ration. both total about 65% or your score.

You can monitor your credit report for free each year on http://www.annualcreditreport.com.