Credit scores and reports are important, and not just for home buyers. Folks standing in line July 11 to buy a new iPhone will find they won’t be able to activate it without paying AT&T a $250 deposit if they fail their in-store credit check.

Landlords, employers, banks, car dealers and insurance companies all want to know what kind of borrower you are before they do business with you.

But that doesn’t mean you need to go overboard, like some monitoring firms would have you believe. Watch their commercials, and you get the feeling that if you don’t stay home from work to watch your credit file 24/7, you’ll face financial ruin and lose your identity, too. It shouldn’t come as a shock that many of those services also charge fees for information that costs nothing elsewhere.

There are easy, genuinely free ways to stay on top of your credit files and use them to save money.

Here’s what you need to know now to do that.

– Understand the difference between your credit report and your credit score. Your credit report is the record of all of your credit transactions: your loans and credit cards, your credit limits and your payment history. Your score is a single number that is derived by feeding all of the data from your credit report through a complex algorithm.

– You should check your credit report at least once a year to make sure there are no mistakes in it. Credit reports are created and kept by three separate credit reporting agencies: TransUnion, Equifax and Experian. All three should have the same facts on their reports. You can get one free report from each of them every year by going to the website annualcreditreport.com. You may want to monitor your credit report more often than that, if you are getting ready to buy a house or take out a large loan for some other purpose.

– Between now and September 24, you can also sign up for six months of free credit monitoring from TransUnion at the website www.listclassaction.com/. This is part of the settlement of a large class-action suit against the company.

– Most lenders use your credit score in deciding how worthy you are. And they charge people with low scores more. The most widely used score was developed by Fair Isaac Corp. and is called a FICO score. But each of the three agencies are producing their own scores and have also banded together to create a fourth common score, called a VantageScore. These scores matter, in real dollars. For example, if you have a solidly high FICO score over 720, you’ll pay 6.3 percent for a 30-year loan. That would put the monthly payment on a $250,000 loan at $1,548. If your FICO score is a middling 670 instead, you’d get a rate of 8.11 percent, and pay $1,855 a month. Over the life of the loan, you’d pay almost $370,000 more in interest, according to Fair Isaac.

– Many websites are starting to make credit scores available for free, though none are giving away FICO scores right now. Some sites to check are creditkarma.com, eloan.com, and prosper.com. For a fee, you can get your FICO score at myfico.com. If you’re satisfied that your credit report is accurate and you have no big plans to borrow anytime soon, you don’t really have to worry about looking up your score.

– You can improve your score. The best way to do that is to build a history of paying your bills on time. You can push up the score a little bit by raising the credit limits on your cards but not borrowing all the way to the limit, because using a small percentage of your available credit raises your score. You can hurt your score by closing inactive cards or applying for too many cards at once.

– If you intend to buy a house or borrow for a car in a year or so, the time to start checking on all of this is now. With one year of good behavior, you can bring a weak credit score up into more solid ground. And pay less for that loan.

Linda Stern is a freelance writer. Any opinions in the column are solely those of Ms. Stern. You can e-mail her at lindastern@aol.com.

When you hear about someone taking out a bad credit loan, you think of the worst – high interest rates and terrible pay back conditions. That’s not necessarily the case though, as bad credit loans do have their place in the financial market. In fact, bad credit loans offer some distinct advantages for people with less than stellar credit.

Provides needed cash
If you need $10,000 to help pay for that upcoming wedding, and you can’t get approved for a regular loan, a bad credit loan may not be a bad choice. You’ll have to pay a higher interest rate, but the alternative of not having the money is not an option. Likewise, if you need the extra money to fix your car’s engine and you can’t afford to buy a new car, then the bad credit loan can save the day. Just make sure that you can afford the monthly payments; otherwise, you’re asking for even more credit worries.

Helps improve your overall credit score
Paying off your bad credit loan in a timely manner, month after month, can actually help improve your overall credit rating. Creditors will see that you can make your payments on time, especially for a loan with a higher interest rate. If you happen to get in a bind and can’t afford a payment one month, notify the lender and try to set-up alternative payment arrangements. Perhaps you can pay twice the amount the following month without it negatively affecting your credit score. You would be surprised how flexible some of these lending institutions can be, especially at the higher interest rate charges.

No rejection
If you have less than ideal credit, you’re probably tired of being denied credit. It can be a humiliating experience when you’re turned down time and time again for having poor credit. It also negatively affects your credit score when you apply to a bunch of lenders. With a bad credit loan, on the other hand, you’ll be approved as long as you agree to the interest rate charges and terms of payment. No more rejection notices in the mail from gigantic lending institutions. You can even apply for loans online, with quick application procedures and fast approval times. It will completely take the humiliation factor out of the credit application process. It will almost be a pleasurable experience.

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NEW YORK (AP) — Just as Americans grow more reliant on credit cards to help pay monthly bills, they’re being hit with a one-two punch: Card companies are reducing borrowing limits for tens of thousands of consumers, which then can lead to lower credit scores.

Those facing this predicament might not even know it until they apply for a loan or another credit card, and then get denied because their credit score has dropped.

This is an unintended consequence of the financial world’s widespread ratcheting down of risk. Banks and other card lenders are trying to better protect themselves from more massive losses like those they’ve seen from subprime mortgages.

As a result, they are looking for ways to reduce their exposure to cardholders more likely to default. That’s why they are lowering credit limits, which means they are reducing the maximum amount of credit extended to an individual, along with boosting card interest rates and allowing fewer balance transfers.

“This is what they have to do at this time,” said John Hall, a spokesman for the American Bankers Association, a Washington-based trade group.

Such moves come as consumers are increasingly using their credit cards as a source of liquidity, especially since it’s becoming harder to tap their home equity as much to pay for everything from renovations to vacations to trips to the mall. As the housing and mortgage markets have collapsed, lenders have also reduced the limits on what are known as home equity lines of credit, or HELOCs.

Net home equity extraction fell nearly 60 percent from a year earlier to $205 billion in the first quarter, according to Merrill Lynch. The investment bank also notes that some $1.2 trillion in equity and housing wealth was wiped out in the first quarter alone because of plunging home values.

At the same time, revolving credit usage — which includes credit cards — accelerated sharply to a year-over-year growth rate of about 8 percent in recent months. That’s the fastest rate in seven years and well ahead of the 2 to 3 percent rate of growth from 2004 through 2006 when home equity lines of credit were a bigger source of cash for consumers, according to Merrill.

But as credit cards are used more frequently, that often results in bigger balances left on the cards. What’s worrisome is that consumers who are faced with a number of ugly economic scenarios hitting at once — falling home prices, surging commodities costs and a weak job outlook — won’t be able to pay their bills.

American Express warned Wednesday that more of its customers were falling behind on their payments. That led some Wall Street analysts to forecast that the card company may soon lower its predicted earnings growth for 2008.

“Business conditions continue to weaken in the U.S. and so far this month we have seen credit indicators deteriorate beyond our expectations,” American Express’ CEO Kenneth Chenault said in a statement.

That’s why card companies including Washington Mutual, HSBC and Wells Fargo are lowering their credit limits, according to data from the consulting firm Institutional Risk Analytics.

Consumer advocates aren’t saying that is bad news — in fact, they believe it helps prevent cardholders from overextending themselves and is preferred to having a sudden surge in card interest rates.

“In the purest sense, it is the better way to manage the risk of a cardholder,” said Linda Sherry, director of national priorities for Consumer Action, a national non-profit consumer rights and education group. “But a low credit limit can also unknowingly hurt a credit score.”

Here’s how that happens: Let’s say a cardholder has a credit limit of $10,000 and a balance on the card of $4,000. The card company worries that large balance may increase the prospects for default, so it lowers the credit line to $5,000.

But in doing that, it completely changes what is known as the credit utilization rate, raising it from 40 percent to 80 percent. That is then factored into the calculation of one’s so-called FICO credit score, which measures creditworthiness, according to Craig Watts, a spokesman for FICO-creator Fair Isaac Corp.

A lower FICO score could make it more expensive for someone trying to borrow money. For instance, someone taking out a $25,000 36-month auto loan would see an interest rate of about 6.4 percent and a monthly payment of $765 if they were in the highest range of FICO scores of 720 to 850, according to Fair Isaac’s Web site myFICO.com.

That then jumps to an interest rate of 7.3 percent and a monthly payment of $776 for those with a score of 690 to 719 and as much as 15 percent or $866 a month for those with the lowest FICO range of 500 to 589.

According to the Comptroller of the Currency, one of the government agencies that regulate U.S. banks, companies must notify cardholders at least 15 days in advance before making changes in the terms of their account, such as lowering the credit limit. But they don’t have to explain how that could change an individual’s credit score.

That puts the burden on consumers to watch out for this. They better so they don’t get blindsided.

With auto manufacturers reporting slow sales and gasoline at record highs, anyone in the market for a new car can find some great deals. But before you hit the dealership, you should do a little homework to make sure you can get the best rate on an auto loan.

The single most important thing you can do to get the best rate is to know your credit score at least 30 days before you apply for a loan. This provides you with the opportunity to raise your score if you find out it’s low. Knowing your credit score means you’ll be better aware of the rates a lender will give you. A higher score tells lenders you’re less of a risk because you have a history of responsible credit usage and paying on time. Consequently, you will receive better rates.

You can check your credit score quickly and easily at GoFreeCredit.com. The credit report is free and you can try to credit monitoring service free for 30 days. Use it to monitor any activity and make changes to increase your score, if necessary. GoFreeCredit.com gives a detailed, personalized analysis of your credit report with advice on how to improve it. You can also get information on how to understand your credit report. After the 30 day trial, you can continue the service for a low monthly fee to keep an eye on your credit report and help prevent fraud.

Experts advise checking your credit report several times every year, but checking too often with other services can hurt your credit score. Using GoFreeCredit.com will not negatively affect your score, no matter how often you check it.

When checking your report, it’s important to verify your credit history is correct. No one wants to sit down to discuss an auto loan only to find out a simple error has lowered their credit score, negatively affecting their rate. Examples of common errors include small unpaid balances from long-forgotten credit cards or false accounts opened in your name by someone else.

GoFreeCredit.com can refer you for a free consultation with an accredited credit repair company to help you remove such errors from your report.

The last thing to do before visiting the dealer is to arrange your financing. Most people don’t realize that dealers tack on extra percentage points to the interest rates they offer. Arranging your financing online can save you hundreds of dollars per year.

Just a few extra steps before you start test driving new cars can help you get a great rate on your next auto loan. To sign up for your free credit report and score with unlimited access to your 30-day credit monitoring trial, visit GoFreeCredit.com and check your credit report today.