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What's Your Financial Reputation?

Jane is a very diligent person.  She brushes her teeth after every meal, sends thank you notes out immediately, and always welcomes new neighbors with a nice homemade casserole. That's why she was absolutely shocked when she went to buy a car and was turned down for a low interest auto loan due to her poor credit score.  Jane didn't even know she had a credit score!

Jane's not alone.  These days most of us have a sea of numbers floating around in our heads - our Social Security number, our cell phone number, the combination to our gym locker, etc.  However, when it comes to one very critical number, many people are in the dark.  We're talking about your credit score.  Your credit score is a three-digit number that serves as a short hand way of defining your financial reputation.  The reason this number is so important is that it can affect your ability to get a home loan, a car loan, a cell phone, insurance, even a future dream job.

How does this all-important number get created?  It starts with three organizations called credit bureaus (Equifax, Experian, and TransUnion) that collect all kinds of financial data on you.  The information they gather ranges from how many credit cards you have outstanding to how good you've been at paying your bills on time.  This information is stored on what is called your credit report.  Your credit report is what each credit bureau uses to create your credit score.  Each of the credit bureaus has slightly different data on their version of your credit report, and thus you actually have three credit scores, one from each credit bureau. 

How do you find out your personal credit score?  The easiest way is to go to www.myfico.com.  FICO, which stands for Fair Isaac Corporation, is the company whose 'recipe' for credit scores is most commonly used by the credit bureaus. You can either pay roughly $15 for one credit score, or if you are really serious about it you can pay about $50 to get your score from each of the three big credit bureaus.  Traditional FICO credit scores range from 300 to 850, where higher is better.

If your credit score is low, don't despair. A few changes in your habits and you can whip it back into shape.  The two most important steps you can take are making sure you always pay every single bill on time and keeping any balances on your credit cards as low as possible relative to your credit limits.  It's also very important to make sure that the data each of the three big credit bureaus use to create your score is actually correct.  You can do this by going to www.annualcreditreport.com and requesting your credit reports. 

Thanks to recent legislation, every American can get a copy of their three credit reports free once a year on this site.  Remember, that's your credit REPORT, not your credit SCORE.  We recommend taking advantage of this and checking your reports every year. What you are looking for is a name or address that isn't yours, any accounts you didn't open (both possible signs of identify theft), or any overdue bills you've subsequently paid off which are still showing as outstanding.  Your aim is to put your best financial foot forward, and having your credit reports represent you fairly is a critical part of that goal.

So what happened to diligent Jane?  Jane fell victim to two of the most common ways to end up with a less than stellar credit score.  She frequently paid her bills late and was maxed out on her credit cards.  As a result of her poor credit score, Jane was charged a much higher interest rate - and consequently paid $100 more a month for her auto loan than if she had a good credit score.  Don't end up like Jane.  Take charge of your financial future by maximizing your financial reputation!

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