How to improve FICO scores

The veil of secrecy has been lifted when it comes to FICO credit scores. You can now find out what kind of credit you have by clicking on www.myfico.com and ordering a copy of your score. It's worth the effort.

Since 1988, the people at FICO, which is short for Fair, Isaac & Co. of San Rafael, CA, have been boiling down information from leading credit bureaus into a three-digit number that describes creditworthiness. Scores range between 300 and 850, and high scores indicate you manage credit well.

"Consumers with high FICO scores should insist on lower interest rates, and those with low scores may be able to improve them by reducing credit card balances or closing inactive credit or charge card accounts," said Kim Womack, director of education for Consumer Credit Counseling Service of South Texas. CCCS is a non-profit, community service organization that provides professional financial guidance, credit counseling, community-wide educational programs and debt management assistance to consumers.

While it's hard to say what a "good" FICO score is because lenders use different criteria, a recent car loan survey by E-loan revealed that consumers with scores of 720 or higher were getting 7 percent interest rates and consumers with scores of 640 or less were getting 11 percent interest rates.

Your FICO score is one of the first things lenders check when you apply for a credit card, a car loan or a mortgage. It is based on your payment history, debt load, credit history, recent credit applications and type of credit accounts.

FICO scores are now available online at www.myfico.com for $12.95 from Fair, Isaac & Co. and the Equifax credit bureau, along with score improvement tips and an Equifax credit report. The Experian and TransUnion credit bureaus also have FICO scoring systems.

Here are tips from CCCS of South Texas for consumers who want to improve their FICO scores:

Heed the advice on your FICO credit report. Your FICO report may tell you what you can do to improve your score. These tips are called "reason codes" and many reports include at least four. Here are examples: amount past due on accounts; too many accounts with balances; or too few accounts with recent payment history.

Establish at least one credit account. Pay with cash all the time and the FICO formula won't have anything to measure. You will need to open at least one account for six months to get a score.

Apply for new credit judiciously. An "inquiry" can go on your credit report when you apply for a credit card. Too many inquiries can lower your score because creditors may be wary of people trying to amass a lot of credit or who jump from card to card. FYI! You don't get an inquiry when you order a FICO report or you receive an unsolicited credit card application.

Check credit reports periodically for errors. Credit bureaus make mistakes, and they provide information that goes into your FICO score. It's a good idea to check your credit reports from time to time, and they can be ordered for about $8 each. (Residents of Colorado, Georgia, Massachusetts, Maryland, New Jersey and Vermont can order a free credit report from each of the leading credit bureaus each year.) The leading credit bureaus include: Equifax 1 (800) 685-1111; Experian 1 (888) 397-3742; and TransUnion 1 (800) 888-4213.

Use five credit cards or less. Research shows that people who carry balances on a lot of credit cards are a greater credit risk than the general population. Consequently, it may be in your best interest to close lesser-used accounts and consolidate your charges.

Contact a credit counselor. If you are concerned about your FICO score, call CCCS of South Texas at 800-333-4357 to schedule an appointment with a certified credit counselor. He or she will analyze your financial situation and make recommendations.

Follow these tips and you will be able to make the most of your credit. If you have a high FICO score, insist on a competitive interest rate. If you have a low score, see what you can do to improve it.