Your credit, your number

If you've ever applied for credit or insurance, chances are the lender or insurance company checked your credit score. For years, creditors have been using credit scoring systems to determine if you'd be a good risk for credit cards, auto loans, and mortgages. Credit scores are also often used by employers and utilities.

So what is credit scoring? It's a system creditors use to help determine whether to give you credit. It also may be used to help decide the terms you are offered or the rate you will pay for the loan.

Lenders can use one of many different credit-scoring models to determine if you are creditworthy. Different models can produce different scores.

However, lenders use some scoring models more than others. The FICO score is one such popular scoring method.

The FICO scale runs from 300 to 850. Generally, the higher your score, the better rates you'll be offered. Those with a score of 720 or higher will get the most favorable interest rates on a mortgage, according to data from Fair Isaac Corp., a California-based company that developed the first credit score as well as the FICO score.

According to Fair Isaac, 58 percent of Americans have a FICO score of 700 or higher.

The Fair Credit Reporting Act (FCRA) requires each of the nationwide consumer reporting companies -- Equifax, Experian, and TransUnion -- to provide you with a free copy of your credit report, at your request, once every 12 months.

To order your free annual report from one or all the national consumer reporting companies, and to purchase your credit score, visit www.annualcreditreport.com, call toll-free 877-322-8228, or complete the Annual Credit Report Request Form and mail it to: Annual Credit Report Request Service, P. O. Box 105281, Atlanta, GA 30348-5281.

Only one website is authorized to fill orders for the free annual credit report you are entitled to under law -- annualcreditreport.com. Other websites that claim to offer "free credit reports," "free credit scores," or "free credit monitoring" are not part of the legally mandated free annual credit report program. In some cases, the "free" product comes with strings attached.

For example, some sites sign you up for a supposedly "free" service that converts to one you have to pay for after a trial period. If you don't cancel during the trial period, you may be unwittingly agreeing to let the company start charging fees to your credit card.

FCRA also gives you the right to get your credit score from the national consumer reporting companies. They are allowed to charge a reasonable fee, generally around $8, for the score. When you buy your score, often you get information on how you can improve it.

Typically, your credit score is most influenced by two factors: how you pay your debts and how much debt you owe. For example, late payments on loans, a past bankruptcy, debt collections or a court judgment ordering you to pay money as a result of a lawsuit will negatively affect your credit score.

Lenders want to be sure that the debt you owe is manageable. One example: Lenders get concerned if you have a significant amount of debt compared to your income --- say, if what you owe each month on all loans and credit cards exceeds one-third of your monthly income.

Other factors that can affect your credit score include how long you've used credit, how often you've applied for new credit and whether you've taken on new debt.

While federal law requires lenders and other companies providing information to credit bureaus to give accurate information, mistakes do happen. So, when you look at your report:

* Make sure it accurately reflects how you have paid your bills. If you always pay your credit card and other loans on time, but your credit report erroneously shows late payments, you'll want to correct that.
* Verify that all the accounts listed are yours, especially if you have a common name or you share a name with a relative (such as John Doe, Jr.).
* You also want to be careful that an identity thief hasn't opened new accounts in your name to commit financial fraud.
* Look for accounts you don't use and may have forgotten. You may be able to raise your credit score by closing unnecessary credit card accounts.

SOURCES: Bankrate.com, Federal Trade Commission, Federal Deposit Insurance Corporation