By ALLISON BRUCE
Scripps Howard News Service
There may be more to you than your credit score, but that's where lenders typically start when deciding if they want to loan you money.
Credit scores are used in a variety of ways to see if borrowers are a good risk and to determine what type of interest rates they receive. That includes credit cards, car loans, mortgages and even renting an apartment.
There are dozens of credit scores used by different companies and lenders. However, all those calculations start at the same point -- with your credit history from a credit-reporting agency.
Knowing your score is increasingly important. The most commonly known score is FICO, which was developed by Fair Isaac Corp. The company, now known simply as FICO as of March 10, has a Web site where people can check their scores, which range from 300 to 850.
Traditionally, people visit the site to review their scores when they are about to make a major purchase, such as a home or car, said Barry Paperno, consumer operations manager. That has died down, though there is a lot of activity when people refinance a mortgage.
Also in the past, people with credit problems were buying scores and reports as they tried to rebuild credit, he said. Now, more people with good credit are concerned about maintaining their credit.
"There's more of a need now to be conscious of your score and what it takes to maintain it for folks with good credit," Paperno said.
SurePath Financial Solutions, formerly Consumer Credit Counseling Service, helps people concerned about their credit, said Patty Guertler, public relations and education manager and counselor at the California firm. "A great number of the consumers we assist are consumers who are struggling keeping up with credit card payments or mortgage payments," she said.
Some are worried they might fall behind on their home payments, affecting their credit scores. Others -- even those with good scores -- have seen their credit limits reduced drastically, which affects their FICO as well.
People are more savvy about credit scores, Guertler said. At the same time, many need to be aware of scams and dishonest companies out there making undeliverable promises to boost credit scores.
Guertler said people should consider paying off debt while also thinking about savings -- creating an emergency fund for tough times.
At Guild Mortgage in Camarillo, Calif., branch manager Bryan Peck said homebuyers with good credit are entering the market now that it's affordable. But some clients have been caught off guard by credit card companies that are lowering limits.
A $2,500 balance on a card with a $10,000 limit is conservative, which helps boost a person's credit score. But if the bank lowers that limit to $5,000, suddenly the cardholder appears more risky. "Your score is dropping because of nothing you did wrong," Peck said.
Some advisers suggest that people with good credit who get their limit reduced should switch to a new credit card and cancel the existing one.
Another challenge has been the rising minimum score for FHA loans. Peck said he has clients who qualified for loans when the score was 580, but now miss out because the cutoff has been raised to 600. He runs credit simulations to see how they can edge up from 590 to 600. He encourages clients to pay down balances when faced with reduced credit limits. Peck has encouraged others to open another account and establish more credit. For those who don't have credit cards and don't have a credit history, he encourages them to open accounts that they can pay off each month.
People can do simulations on their own, too, using sites like CreditKarma.com, where users can find out a credit score and monitor it for free. Founder Ken Lin said he started the site after paying for monthly monitoring of his own score a few years ago.
"I didn't know what my credit score was 10 years ago. I think most consumers didn't," Lin said. "Now I think they do."
The scores on the site are developed from TransUnion, one of the three reporting bureaus. Lin said there are more than 100 credit scores in use. Consumers don't always know what credit score a lender uses - which is why it is important to ask.
Lin said credit scores are highly correlated. If you're paying your bills on time, that will help all your scores improve, he said. So tracking over time is important.
Paperno said it is not only important to know the score, but also the reasons behind it.
A credit score does not look at your income, your bank balances or whether you rent or own your home. Those are things a lender might consider, but they aren't a part of the score, he said.
The two biggest factors are payment history and the amount owed.
Someone who had stellar credit in the past but has been late on recent payments could have a lower score than someone who declared bankruptcy five years ago but has done everything right since then, he said.
That may go against common assumptions, but it indicates who is the better risk at the time of a loan.
With amounts owed, a lot hangs on balances. If someone is maxed out on their credit cards, even if they make all their payments on time, they could have a low score. That one is quick to fix -- pay off the balances and the score will reflect the improvement.
To establish credit:
Maintain a checking account in good standing.
Make regular deposits into a savings account. You could use that account as collateral for a loan you could take out and then repay quickly.
Apply for a credit card at a department store or other retailer. Build your creditworthiness by repaying the account as required.
Join a credit union. All credit unions offer savings accounts and most offer interest-bearing checking accounts.
Your FICO score refers to your credit rating. Though there are many credit scores, FICO is the most commonly known. They range from 300-850. The higher the score, the better the credit history. The median FICO score in the U.S. is 723.
You can obtain a credit report once a year for free from each of the credit bureaus. Go to http://www.annualcreditreport.com.
