5b Besides the CRAs, there are other companies that may have important information about you. One of these is ChexSystems, an agency that banks and financial institutions use to decide whether they'll let you open an account. ChexSystems keeps track of bounced checks and account problems. Just as you're entitled to a free credit report, you're also entitled to a free ChexSystems report once a year! See their web site to find out more. It's important to pay bills on time so that your credit reports will be positive. It’s also important to check your reports for accuracy. Remember, these reports are what lenders look at when they decide whether to give you credit and how much to charge you for it. By taking control of your credit report, you can take control of your credit. If credit reports are report cards about our financial worthiness, our credit SCORES are the grades. You can't change a bad grade on your report card, but you CAN change a bad credit score! Let's get some facts about how your credit score is determined. Then we can look at ways to make it better. Credit scores are based on information from your credit reports. The traditional credit score ranges between 350 and 850. The higher your number, the better. The company that developed the mathematical formulas for the score is Fair Isaac and Company, or FICO. That's why your score is sometimes called a FICO score. FICO's exact formula for computing credit scores is a trade secret, but we know the factors they use. 35% of your credit score is based upon payment history, whether you paid on time and the seriousness of any delinquencies. 30% of your credit score is based on the amounts you owe, including the percentage of the credit you have available versus what you've actually used. 15% is based upon the length of your credit history. This takes into account how long you've had your accounts and how long it's been since your last activity. 10% of your score is based on new credit-that's opening new accounts and lender "inquiries" or requests for your report. The final 10% is based on the type of credit you have. Whether it's a store account, credit cards, installment loans, mortgage debt or consumer finance debt. Some types of credit are better than others. But in the loan decision process, lenders consider more than your credit report and score. For instance, your credit score doesn't take into account how much you earn. But a lender deciding to give you a loan will usually look at your income and debt-to-income ratio along with your credit score and other factors. But your credit score is probably the single most important factor used by lenders. It's important to know that while there are federal consumer protection laws for credit reports, there are no such laws for credit scores, but our credit scores are based on the credit report information. The FICO score is by far the most widely accepted score. Also, while you're entitled to one free credit report per year, you're NOT entitled to your credit score for free! You can get your FICO score directly from FICO, You'd be wise to avoid paying for anything other than your FICO score, since it's the most widely used. FICO scores cost about twenty dollars. You may see offers for a free credit score from time to time. Sometimes companies will use free credit score offers as advertising or as a promotion to get business but some companies will use free credit scores as an enticement to get you to sign up for a monthly service. Read the small print and do not sign up for any unneeded services. Ok, Now that we know about our credit scores, why is it so important? What’s the big deal? I’ll show you the big deal. Let's look at an example of the difference that 30 points in your credit score can make! This is Bob. His credit score is 670. That's pretty good. So Bob can get a 30-year fixed rate mortgage loan at 8.369%. Let's call this woman Jane. Her credit score is 700, just 30 points higher than Bob's. She can get the same mortgage Bob can, but her interest rate will be only 6.682%. Doesn't seem like a huge difference? Well, let's look. If Bob and Jane each got a 30-year mortgage for $150,000, Jane's payment will be $966 a month; while Bob's monthly payment will be $1,139 a month, just because Bob's credit score was 30 points lower than Jane's. Over the course of the entire 30 year mortgage, that 30 point difference in credit score means that Bob will pay almost $20,000 more than Jane. And the difference in dollars increases with the size of the credit score difference. Makes you want to improve your credit score, doesn't it? Credit scores range from 350 to 850. 850 is the best and 350 is the worst score. A score of 720 and up is considered excellent. 620 to 719 is considered good. Anything lower than 620 is sub-prime and you will pay a much higher price for credit or could have trouble getting a loan. So, how can we improve our credit scores? Here are a few ideas. First, and this shouldn't surprise anyone, pay your bills on time. That's the most important thing. Number two, check your credit reports regularly and fix any errors. Number Three: Pay down outstanding balances, do not to use more than 30% of your available credit limits, less is better. Number four: Pay off any small balances. Having many credit cards with balances is not positive. Number five: Limit or avoid establishing new credit. And finally, do not close your old accounts; a long history is a positive thing. Now, I know many of you want to know how you can rebuild your credit reports and scores after bankruptcy. Following the six steps are we just outlined are important. If you do not have any open credit accounts, then open a small account with your bank or your credit union, read the small print to avoid high interest rates or high fees. Only put small amounts on the card per month and pay off the entire balance each month. It’s important that you pay the account on time. Although, if you don't trust yourself with credit cards, don't have them. Let's do a quick review of what we've learned about gaining control of our credit report. Your credit report contains your credit history, so it's important to know what's in it. Get your free credit report from each of the three CRAs once a year. Credit reports often contain mistakes. Check yours and correct mistakes, add missing information, and remove information that shouldn't be there. Wrong information on your credit report can lower Your credit score, so Correct, Add, Remove! Your credit score is the single most important factor that lenders use when deciding your interest rate. A small improvement in your score can mean big savings for you when you borrow money. Get your credit report and take action to correct it, and improve it. The time you spend doing this will pay off, and help you to achieve your financial goals. Always remember, you have the power to improve your credit report and credit score. We can all "Edit our Credit."