GET YOUR FICO SCORE

After you have your credit reports and have taken care of clearing up any mistakes, you are now ready to get your FICO score. Remember, though, that I mentioned that you actually have three FICO scores, based on the different data supplied by each credit bureau. So that can make life expensive, because the charge for one FICO score (which automatically includes a credit report) is $14.95.

But don't worry. Unless you are buying a house, there's no reason to get totally FICO'd; you only need to pay for one score, not all three. If you are simply checking your score, take your pick of any of the three. Now, if you are planning to apply for a loan, you need to be a bit more strategic. Typically, a lender you go to for an auto loan or credit card will check just one of your FICO scores. So you want to call them before you apply and find out which FICO score-compiled from the information from Equifax, Experian, or TransUnion-they will use. That's obviously the score you want to check yourself before applying for the credit card or loan.

Here's some trade lingo to help you understand which credit bureau is being used: If the lender says it uses the Beacon score, that means it's Equifax. If they say Empirica, it means riley use TransUnion. The Experian name is self-evident-it's Experian/Fair Isaac Risk Model. A mortgage gets a bit trickier. Because this is such a huge financial responsibility, mortgage lenders are going to check all three FICO scores. So in this instance, you need to cough up the money to check all three of your FICO scores. But hey, spending $44.85 to make sure you're in good shape for landing a six-figure mortgage isn't asking much.

I need to stress how important I think it is to make sure you get an actual FICO score. There are other credit scores available for just a few dollars, which I know look tempting compared to the cost of a real FICO score and credit report. But saving seven or eight bucks can end up costing you a ton. The problem is that those other credit scores aren't what the majority of lenders and businesses use when checking your history to decide if you are a good credit risk, and those scores can be off by as much as 50 to 100 points from your real FICO score. The FICO score is the industry standard. Consider this scenario: You want to buy a house. So you pay $5 to check your score at one of the "other" services. Everything looks fine, so you go ahead and apply for a mortgage. But when your mortgage lender checks your real FICO scores, they aren't as good as you expected, and you end up getting stuck with a higher interest rate on your loan. That could cost you thousands of dollars in extra interest payments. All because you wanted to save a few bucks by not paying for a real FICO score.

STRATEGY SESSIONS

PROBLEM:

There is so much conflicting advice on how to improve my FICO score.

SOLUTION:

Focus on what matters to the FICO folks.

Your goal is to do everything possible to please the FICO gods. As the table on page 23 shows, there are five key areas that affect your score. So let's just focus on those five areas, in order of importance.

1. PAY ON TIME

Your track record in making timely payments accounts for 35 percent of your FICO score. Notice I said nothing there about paying a load of money. All that is required is that you pay the minimum balance due on time. That shows that you are responsible. The longer you manage to be on time, the better your FICO score will be.

Now let's review what qualifies as "on time." Writing the check on the date it is due is not on time. Nor is sending it in three days late but backdating the check. Cute just doesn't cut it.

I want you to write the check and put it in the mail at least five days before your due date. Or if you use online bill pay, make sure you get to it at least two days before the due date. As far as I am concerned, online bill pay is a smart YF&B move. You sit down once a month, and with a few clicks you can have all your bills paid automatically, including your credit card. Just do me a favor: If you have a PDA and use the calendar feature, give yourself a reminder a good three or four business days before the credit card bill is due to sit down at your computer for fifteen minutes and authorize all your online bill payments.

2. MANAGE YOUR DEBT-TO-CREDIT-LIMIT RATIO

Your next challenge is to see if you can reduce what is known as your debt-to-credit-limit ratio. Your debt is the combined balances on all your various credit cards and installment loans-the sum of what you owe. Your credit limit is the combined total of the maximum amount each credit card company is willing to let you charge. This calculation plays a big part in determining 30 percent of your score. (Included along with that calculation is whether you carry balances on other accounts, and how much debt you have left on loans such as a mortgage or car loan, compared to the original amount borrowed.)

Excerpted from "The Money Book for the Young, Fabulous and Broke" by Suze Orman. Copyright 2007 by Suze Orman. All rights reserved. No part of this book may be used or reproduced without written permission from Spiegel & Grau.

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