In our grandparents’ youth, getting a car or mortgage loan might have depended on a good personal relationship with their local banker. But these days, millions of Americans must instead rely on their credit scores, the ratings that financial institutions use to determine the “creditworthiness” of potential borrowers and credit card holders. Consumer awareness of credit scores has grown since the Fair Isaac Corporation first introduced its FICO credit scores in 1989. It’s a great habit to develop because there’s a lot you can do to build a good score. It’s also a good habit because monitoring your credit score is a good way to monitor the “health” of your identity. So, let’s take a look at the ins and outs of credit scores and how you can use them to build and protect your financial well-being.

First, let’s start with the basics: a credit score predicts how likely you are to pay your debts on time. The formulas are secret, but the scores typically take into account your outstanding debt vs. your available credit, your payment history, the length of your credit history, and whether you’ve recently opened new lines of credit. The original FICO score is still the most commonly used. Before extending you credit, banks or businesses will check your score, usually with one of the three major credit bureaus, Experian, Trans Union, or Equifax. General-purpose FICO scores range from 350 to 850. A score of 670 or more is considered good, but you may qualify for better interest rates if you have a very good (740–799) or excellent (800–850) score. If your score is in the fair (580–669), you can still get credit, but generally on less favorable terms.

To improve your score, experts recommend a number of ways: paying your bills on time for at least 6 months, paying off loans or existing credit card balances, avoiding credit balances greater than 30% of a card’s limit, and even requesting higher limits on some cards if you already have a good payment history. Having lenders check your score will drive it down a little bit, so don’t be surprised at a slight drop if you apply for a new credit card, even if you haven’t used it. (But it won’t hurt you to check your own score.) Ironically, closing a credit card can have a negative effect for a time because it lowers your total available credit, so your existing credit balances will make up a larger percentage of what’s available. (This is called your “debt-to-credit ratio.”)

Here’s the flip side: Even if you already have a stellar credit score, you can’t afford to ignore your credit score, because a sudden, unexpected change can be the first indicator of identity theft. If you see a sudden, unexpected change in your score, order a free report from one of the credit bureaus immediately and look for fraud or errors such as a new loan or credit card that you didn’t request. If there is evidence of fraud, set a fraud alert on your credit profiles immediately to prevent further fraud. If you notice fraud and have an identity protection plan, notify your service provider so they can begin identity recovery. Otherwise, you’ll need to work with credit bureaus and creditors on your own to recover your identity.

Monitoring your credit score has many benefits, including the potential to build better financial habits. According to the Javelin study, 71% of consumers who check their scores at least once a month feel that they have control over their day-to-day finances (vs. 54% of consumers who never check their scores), and 34 percent boosted their credit score to 620 or above. So, now you have two good reasons to monitor monthly: to build a credit score that gives you plenty of financial freedom, and to protect that excellent score against identity theft and fraud.