Suze Orman's guide for the young, fab & broke

Are you a bit lost and worried when it comes to dealing with money matters? In "The Money Book for the Young, Fabulous and Broke," personal finance expert Suze Orman offers investing advice, savings tips and money managemnt techniques to get you out of debt and in control of your financial life. Here's an excerpt:

Chapter One

THE LOWDOWN

If you forced me to pick one single bit of advice that would have the biggest impact on turning around your financial situation, I wouldn't hesitate for a second. You have to know the score: your FICO score.

Just about every financial move you will make for the rest of your life will be somehow linked to your FICO score. Not knowing how your score is calculated, how it is used, and how you can improve it will keep you broke long past your young-and-fabulous days.

Yet I also know that you are probably FICO-ignorant; I get a 90 percent failure rate when I ask YF&Bers if they know their FICO score or why it is so important.

That's got to change. Right now.

FICO FUNDAMENTALS

A Fico score is a three-digit number that determines the interest rate you will pay on your credit cards, car loan, and home mortgage, as well as whether you will be able to get a cell phone or have your application for a rental apartment accepted. FICO stands for Fair Isaac Corporation, the firm that created the formula that seems to lord over your financial life. The way the business world sees it, your FICO score is a great tool to size up how good you will be at handling a new loan or credit card, or whether you're a solid citizen to rent an apartment to. A high FICO score gives you a great reputation with the business world; you'll get the best deals. A lower FICO score translates into paying higher interest rates on cards and loans. Your credit history can even affect your auto insurance premiums or your ability to get that job you applied for. I wasn't kidding when I said it was connected to just about every part of your life.

With so much on the line, I hope it's clear now that you can't afford to stay FICO-ignorant.

Your FICO score is based on your spending and bill-paying habits, and your overall debt load. I know this might come off as a bit of disturbing big brotherism, but nearly every financial decision you make is being watched, tracked, and massaged, with the goal of determining your financial profile. The folks you do business with, from lenders (school loans, auto loans, mortgages] and the phone company to credit card companies, constantly file reports on your financial activity to one of three major credit bureaus. These credit bureaus know what you have spent, what you owe, and if you tend to pay bills on time or let them slip. From all that raw personal data, the three credit bureaus calculate your FICO score using a formula developed by Fair Isaac.

Fair Isaac and the credit bureaus make a ton of money sharing your FICO score. Mortgage lenders, auto lenders, employers, cell-phone companies, and insurance companies are happy to pay up to get a glance at your FICO score. They use it just like colleges used your SAT score. It helps them assess whether they want to accept your application, or what terms they will offer you. To the financial world, you are your FICO score-plain and simple.

THE FICO FORMULA

Fair Isaac sorts the data from the credit bureaus into five broad categories that have varying degrees of importance in calculating your FICO score. Don't worry, this is not going to require dusting off your calculus textbook. It's fairly straightforward.

Your ... Accounts for this percent of your FICO score

Record of paying your bills on time 35

Total balance on your credit cards and other 30 loans compared to your total credit limit

Length of credit history 15

New accounts and recent applications for credit 10

Mix of credit cards and loans 10

On pages 29-32, I explain what moves you can make to boost your score on these five key elements.

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