Skyview Enterprises

Recipe for a credit score
But first, just what is a credit score? To calculate a score, Fair Isaac uses 22 pieces of data collected from the three major credit bureaus, Equifax, Experian and TransUnion). The lowest possible score is 300, while the highest is 850.
The final number is a composite of individual ratings in five categories:

Payment history (35% of the rating)
Length of credit history (15%)
New credit (10%)
Types of credit used (10%)
Debt (30%)
Income is not a factor. “A person can have a very high income and never pay their bills,” explained Craig Watts, public affairs manager for Fair Isaac.

Fair Isaac calculates a FICO score based on the data provided by each credit bureau. It’s not uncommon to see up to a 50-point differential between ratings. The reason: Bureaus collect data at different times of the month, and one bureau may have inaccurate information.

The higher the score, the lower the risk you are to a creditor — and the less interest you’ll pay. Only 13% of the population has FICO scores of 800 or above; the median is 723. There is no single cut-off for loans, however, and cut-offs employed vary from industry to industry. Generally, borrowers with scores above 740 receive the best rates.
To see how a change in your FICO score affects how much you’ll pay, consider this example. On a $350,000, 30-year fixed mortgage, you’ll pay 6.24% in interest and $2,153 a month if you score between 720 and 850. If your score drops to between 620 and 674, your interest rate jumps to 8.05%, and your monthly cost rises to $2,581. You will pay an additional $154,131 over the life of the loan, according to a calculator on myfico.com.

Keep an eye on your score
Want a peek at your FICO scores? Many people think they can get their FICO scores from their credit reports. They can’t — but it’s still a good place to start. The Fair and Accurate Credit Transactions Act of 2003 entitles you to a free credit report from each major credit bureau once a year. I ordered my reports by telephone from annualcreditreport.com and received them all within 10 days. It’s smart to request a report from a different agency every four months so you stagger the reports over a year. That way, if there’s bad information in one, you’ll spot it sooner.

When you request a free credit report, each bureau will offer to calculate a credit score for $6.95. Experian and TransUnion use proprietary formulas; Equifax uses FICO scores. Pass up these offers, because the information is not as comprehensive as you’ll get elsewhere and lenders are less likely to look at these scores.