We depend on credit history for so many important things in life: buying or refinancing a home, purchasing a car, or even getting a student loan. This three-digit number, your credit score, can determine whether you can do these things and how much it will cost you.

How can a simple number determine your ability to get a get a loan?

Your credit report contains a history of how you’ve paid your bills, how much open credit you have (more money borrowed or used translates to a lower credit score), and anything else that would affect your creditworthiness. If you aren’t careful about your credit, you could end up paying a high price. Not only can the mismanagement of your credit prevent you from getting a loan on your home; it can also make it expensive. A low score, or a high-risk score, will mean higher interest rates which equal higher payments.

All of this adds up to say your credit score is enormously important. Your credit score is calculated based on your current credit report, so the score changes when your report changes with new data from your creditors.

Here are some tips on managing your credit:

1. Review your report: Some reports can contain errors. It is important to correct any errors your find as these are likely causing your score to decrease.
2. Keep your old credit accounts even if they are inactive: Keeping a positive payment history is also important. The longer the account is open with a positive history, the better the reflection on your score.
3. Reduce your balances: Reduce balances to 75% or less of your total credit available.
4. Pay your bills on time: A late payment, just one, can devastate years of positive credit history.
5. Limit your inquiries: If you must apply for credit, or if you are shopping for a mortgage loan, make sure the inquiries are within a few weeks of each other.
6. If you are applying for a mortgage loan, do not open any new credit card accounts and avoid refinancing debts or adding any new installment debts (car loans, student loans etc.). Adding new debt to your credit profile can greatly impact your ability to qualify for a home loan. Not only can this cause a drop in your score; it can also cause a denial on a loan already in process. If you are considering buying or refinancing your home, the best practice with your credit is to leave it alone. If you must obtain new credit, wait until your loan has closed and funded before proceeding with any other applications for credit.