Your credit score is a mathematical calculation done by the credit bureaus to determine your credit worthiness. A high credit score means you are a good credit risk; a low score means a lender will only lend to you if they charge you a high interest rate, or if you provide outside security, such as a car or a house.

A good credit score is important, because the better your score, the easier and cheaper it is to borrow. Even a one percent reduction in the interest rate on a mortgage can save you thousands of dollars in interest payments over the life of the mortgage.

How do you establish a good credit score? Follow these steps.

First, pay all of your bills on time. Never pay your hydro, phone or rent late, because that may significantly lower your credit score.

Second, if you are starting with bad or no credit, apply for a secured credit card. Since you are, in effect, prepaying for your purchases by putting up a security deposit, it is relatively easy to qualify for a secured credit card, and it is a good way to build towards a good credit score.

Third, check your credit report regularly. Errors happen, and if your credit report has inaccurate information, your credit score will be harmed, even though it is not your fault. Experts recommend that you check your credit report at least once each year, and before every major purchase.

If your credit score is not good, consider asking a trusted family member or friend to co-sign a loan for you (but be sure you can pay it back, or else your co-signor is liable for all of the payments).