5 Factors That Determine Your Credit Score

Are you sure you know how good your credit is?

Since September, more credit-card companies have been cracking down on card holders they consider risky -- and even lowering the boom on those good standing -- by reducing their credit lines or increasing their interest rates.

About 65% of banks have lowered the credit limits of new or existing credit-card customers, according to the Federal Reserve’s April survey of senior loan officers, up from 45% in January.

Consumers have taken notice: 19% of customers reported recent interest-rate hikes in June, up from 15% in February, and 14% said their credit limits were recently lowered, up from 8% in February, according to a separate telephone survey of 1,000 credit-card customers conducted by a market research firm for Credit.com.

Recent legislation to prevent credit-card firms from making those kinds of changes won't stop rate hikes and credit limit reductions, as companies may attempt to implement these before a new law takes effect. The Credit Card Accountability Responsibility and Disclosure Act signed by President Obama in May aims to protect consumers and improve transparency associated with sudden changes in their credit-card company policies, but the law will not take effect for another two to eight months. In the meantime, consumers should expect more interest rate or fee hikes or credit line reductions, says Ken Lin, CEO of CreditKarma.com, which offers free credit scores and free tools to help consumers improve their scores. Individuals with credit scores below 700 may see their credit lines reduced, and those with scores below 620 could see some of their credit cards canceled, Lin says. “The idea is to eliminate risky credit card holders before this legislation takes effect,” he says.

Of course, most decisions on interest rates and credit lines are handed down not by MasterCard (MA) or Visa (V) but by the banks that underwrite them.

Bank of America spokeswoman Betty Riess says the bank has always “closely monitor[ed] accounts for risk and may adjust customers’ lines…depending on their risk profile.” In April, Bank of America notified less than 10% of its customers of a rate increase, which went into effect on their June statement, she says. Some of those increases were the result of the bank’s periodic review of individual credit risk, which looks at how individuals are using all their credit and whether they’ve defaulted on loans to other creditors, she says.

Discover (DFS) says that most of its customers haven’t experienced credit line reductions or interest rate increases, but the firm increased interest rates on a small number of cardholders who were paying late or not paying at all.

American Express (AXP) spokeswoman Desiree Fish says the company has been reducing lines of credit since September but that the majority of its customers haven’t been affected.

Spokespersons for Bank of America (BAC) and American Express say their firms haven’t announced policy changes associated with the credit-card legislation.

For now, consumers would be wise to keep a closer eye on their credit scores. Here are the five most important factors that affect your FICO credit score and a few ways to protect yourself against the credit crackdown.

35% of your credit score

Start marking your credit-card bill due dates on your calendar. Paying your bills on time plays the biggest role in determining your credit score.

To stay on top of your charges, consider setting up an automatic bill payment, says Gail Cunningham, spokeswoman for the National Foundation for Credit Counseling. Look over your past bills, estimate your minimum required monthly payment and set up automatic bill payments for that amount, she says. That way, you’ll meet the payment deadlines, dodge late fees or interest-rate hikes, and remain free to pay the remaining balance at your convenience.

The consumer who pays his bills on time every time maintains an average credit score of 706, Lin says, but the drop-off is huge. The average score of a consumer who pays on time 99%: 658.

Making a late payment can also lead to universal default, the condition in which credit-card companies raise your interest rate on their cards for being late with another company’s payment. Once the Credit Card Accountability Responsibility and Disclosure Act goes into effect, that practice will be curtailed, but if card issuers perceive an increase in a cardholder’s risk level through some other means, they could roughly double their rates, Lin says. The annual percentage rate of the average credit-card firm is now 10.9%, according to Bankrate.com.