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This is the first installment of my book review of Suze Orman’s The Money Book for the Young, Fabulous & Broke.  

Chapter 1 of The Money Book for YF&B is titled “Know the Score” and focuses on, surprise, your credit score.

Your credit score, or FICO score (short for Fair Isaac Corporation, the organization that developed it) not only determines your likelihood of getting approved for credit cards and loans, but also what kind of interest rate you will get on them. Your score is anywhere from 300 to 850- the higher, the better- and is based on your past financial moves, including your track record for paying bills and your spending habits.

More specifically, Orman points out the following score determinants, in order of their importance:
“Record of paying bills on time
Total balance on credit cards and other loans compared to total credit limit
Length of credit history
New accounts and recent applications for credit
Mix of credit cards and loans”

You want to aim for a score of 720 or above in order to get the best possible offers and interest rates. Orman continually reinforces the point that your whole financial well-being is founded on your credit score. You cannot get good interest rates on anything without a good credit score. Period. If you want the best deal, you need the best credit score.

The basis of your credit score is the financial history found in your credit reports. In order to improve your credit score, you must access your credit reports. There are three credit bureaus that compile three different credit reports (since information isn’t always reported to all three): Equifax, TransUnion, and Experian. You are entitled to a free credit report from each of these companies every year. To get your free credit reports, visit annualcreditreport.com. Do NOT, I repeat, do NOT visit freecreditreport.com to access your reports. That website is a scam and they will do everything in their power to get your credit card number from you. Only visit annualcreditreport.com.

Check for any mistakes on all three reports- yes all three. You cannot take for granted that just because one is correct that all three are correct. Check all three every year. This error checking also helps alert you to any suspicious activity, like identity theft, that could be going on behind your back. If you do find an error, contact the credit bureau ASAP, as well as the issuing lender. The mistakes could be dragging down your score so be persistent in getting them corrected. Unfortunately, the credit score itself does not come free with these reports. Orman recommends you pay to see your score at least once a year; more often if you are planning to apply for a substantial loan.

Orman offers up a few sure fire ways to improve your credit score based the main score determinants: pay your bills on time; manage your debt to credit limit ratio by either paying down your debt or asking for a credit limit increase (or both); protect your credit history by keeping your oldest cards; and create the right credit mix by having different kinds of debt.

All throughout college, I thought I didn’t have a credit score because I didn’t have any credit cards or even a car loan in my name. When Jake and I applied for an apartment, they ran both of our reports. Jake was in the high 700s (yay, baby!) and I, surprisingly, not only had a score, but one in the 600s- not great, but not bad either. When I looked over the credit report that they so graciously let me peruse, I realized with shock what had given me a score: student loan consolidation. Right before the last big interest hike on student loans, I consolidated my loans even though I was still in school (they no longer allow active students to consolidate). Because of the consolidation, two of my student loans show up as having been paid off, thus establishing my credit. Lucky me!

Since then, I applied and was approved for a credit card through my bank. My bank offers “credit identity protection” with my card which monitors my credit card usage more closely than usual and offers two free credit reports with credit scores every year. There is a service fee for being a part of the program, a small percentage of the balance on the card, but since I don’t carry a balance, it’s free! I received my first report in October and my score is already in the 700s.

A lot of Orman’s advice regarding credit scores is for those of us who already have a good amount of debt racked up. The only debt I have right now is my student loans. I do plan on asking for an increase in my credit limit on my credit card, as Orman recommends, so that I can beef up my credit score even more.

What are your experiences with credit scores and reports? What do you plan to do to improve your score?

On a related note, Trent over at The Simple Dollar recounts a terrible story concerning identity theft and credit scores, plus tips on how to straighten it all out.

Next up for the Money Book for YF&B review is careers.