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

YOUR FINANCIAL LIFE REDUCED TO THREE DIGITS

After massaging all that info, Fair Isaac uses a formula to come up with a score for you that can range from 300 to 850. Anything between 300 and 500 means you are a toxic financial risk and you are going to be hard-pressed to find any business that will want to work with you. Scores between 500 and 850 are sliced and diced to fall into six ranges; the exact cutoffs for those ranges can vary from lender to lender, but typically this is what you may encounter.

So your goal is to get your score into the 720-850 range. The good news is that someone with a score of 721 can get just as good an interest rate on an auto loan as someone with an 849. That's true within every score range.

A MATTER OF INTEREST

The range your score falls into ultimately determines the interest rate that you will pay on loans. Other factors, such as your employment history and salary, will also affect the deal you get, but your FICO score is a major component in determining the interest rate you will end up paying for a home mortgage or car loan.

720-850 700-719 675-699 620-674 560-619 500-559

30-year fixed- 6.0% 6.1% 6.7% 7.8% 8.9% 9.5% rate mortgage

720-850 690-719 660-689 625-659 590-624 500-589

Four-year 5.1% 5.9% 8.0% 10.5% 14.4% 15.8% auto loan

The rates above were effective in the fall of 2004. But regardless of what current interest rates happen to be as you are reading this, the difference between the highest and lowest of the acceptable FICO ranges is going to remain constant: about 3.5 points on a home loan and more than lo points on a four-year auto loan.

If percentages don't do the trick for you, let's convert some of this into cold, hard cash. On a four-year, $20,000 car loan, we're talking about paying an extra $103 a month if your FICO score is in the 500-589 range rather than the top range of 720+. That's $1,236 a year, which comes to $4,944 over the four years of the loan.

I think those are 4,944 very good reasons to care about your FICO score.

FIRST STEP: GET ALL THREE CREDIT REPORTS

Since your FICO score is a calculation based on the history in your credit reports, your first job is to make sure everything in those reports is correct. Don't assume a thing. The rate of mistakes is sickening.

The big three credit bureaus are Equifax, Experian, and TransUnion. You can get the reports online at annualcreditreport.com, or by calling 877-322-8228.

And you need to check all three. In a clear case of "nothing is simple," each credit bureau receives different info about you from different sources. For instance, your credit card may report to Equifax but not TransUnion or Experian. Or your cellphone provider may report to TransUnion but not Experian or Equifax. The result is that you have three different reports, all containing different information. You want to make sure all three are sparkling. (By the way, this also means that you have three FICO scores, not just one. But let's not get bogged down with that just yet.)

By the end of 2005, every consumer will be able to get one free report a year from each credit bureau. This is your credit report only; your FICO score is a separate step we will get to in a minute.

If you don't see your state in the freebie phase-in schedule below, it means you can already get your report at no cost. Otherwise, you need to wait till the dates below, or pay about $9 per report from each bureau now.

FREE CREDIT REPORT SCHEDULE

June 1, 2005 Alabama, Arkansas, Florida, Georgia, Kentucky, Louisiana, Mississippi, Oklahoma, South Carolina, Tennessee, and Texas

Sept. 1, 2005 Connecticut, Delaware, District of Columbia, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, North Carolina, Pennsylvania, Rhode Island, Vermont, Virginia, West Virginia, Puerto Rico, and all U.S. territories

CORRECTING YOUR CREDIT REPORTS

If you have errors on your credit report, please know that you are in good company. A recent survey by the U.S. Public Interest Research Group found that 25 percent of reports have serious errors, 30 percent listed "old" accounts that should have been deleted, and 79 percent overall had some sort of mistake or error. You can file a dispute with the credit bureau (again, go to their website or call their 800 number to set the record straight), but I am not going to sugarcoat this; it can take a long time to sort through most of the problems and have the erroneous information removed from your record.

Technically, the credit bureau has just thirty days to process your challenge and get back to you with a response. But all that means is that they must contact the company that supplied the data-say, a department store, credit card company, or auto dealer-and ask them to verify the information. In thirty days you may hear back that the credit bureau is keeping the information on your record because the company that charged your account says it was a legit charge. If this happens, you must start dealing directly with that business.

Some good news is that a new federal regulation that went into effect in December 2004 ensures that any business that you are in a dispute with about a charge must share information with you and promptly investigate the problem. As reasonable as that sounds, it clearly has not been the case for many people who have tried to clear up problems. Contact the business's customer service department to request help in investigating your disputed charge.

Another possibility is that you may find that the "mistakes" on your report are actually the handiwork of an identity thief. Don't panic, and don't beat yourself up about it. This is pretty much a national financial epidemic. On pages 36-37, I discuss how to deal with identity theft problems.

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