Dykes and Dollars: Get to Know your FICO Score

Let's play some word association. When I say "FICO" what is the first thing that comes to mind? I know most of us would naturally think of the prestigious Female International Cunnilingus Organization, of which we are all members, but there is another FICO out there that represents an entirely different aspect of our identities: our credit scores.

FICO stands for the Fair Isaac Corporation, the company that developed the formula that calculates your credit score. This unassuming three-digit number is by far the most important number in all of our lives, followed closely by the number of drinks it takes one to volunteer for a lube twister event at The Dinah.

Essentially, your credit score is your financial identity and having a good one can put you on the guest list for financial freedom. Without a good score, you're not going to get past the velvet rope. That's why today I'm going to help you earn a one-way ticket to the VIP.

So let's talk about the score itself. It can help anchor a low interest rate on your dream home and it can also deny financing for that shiny new truck you've been eying. Creditors use it to evaluate the risk associated with lending money, extending a credit line or eligibility for a service. A high score tells the lender that you can manage debt responsibly and you are less likely to default on payments or stop paying all together, which could represent a loss to the company.

And contrary to popular belief, useful abilities such as grill proficiency, karaoke singing, beer brewing and surround sound installation do little to help raise your credit score. The good news is that these redeemable qualities do not hinder your score, either.

The five credit-score crunching categories, let's just call them the Fab 5, are payment history, amounts owed, credit history length, new credit and types of credit used. All of this data comes directly from your credit report, which is compiled from the information your creditors transmit to the holy trinity of credit reporting bureaus: Experian, Transunion and Equifax.

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That being said, I think we all guess the first step. Get a beer? No, get your free credit report so that you can check it for inaccuracies. And if I've taught you anything it's that you are entitled to one free credit report a year from each of those three credit reporting bureaus. According to the Federal Trade Commission, annualcreditreport.com is the only authorized source for your free annual credit report under federal law.

Negative erroneous information on your credit report can bring your FICO score down. Luckily, under the Fair Credit Reporting Act (FCRA), both the creditors and the credit bureaus are required to investigate and correct inaccurate reporting - usually within 30 days unless they deem your dispute frivolous.

First you will need to contact the credit bureau(s) that reported the false information to file a dispute. Refer to the appropriate website, www.experian.com, www.transunion.com and www.equifax.com, and follow the simple steps.

Although consumers may also dispute online or over the phone, the Better Business Bureau (BBB) suggests good old-fashioned snail mail. The Federal Trade Commission (FTC) agrees and even provides a sample dispute letter on its website, www.ftc.gov. Next you'll need to contact the creditor that reported the inaccurate information to the credit bureau in the same fashion.  

Just make sure you send copies of any supporting documents and keep a copy for yourself. If the inaccurate reporting is corrected, you will receive a copy of your revised report. You may also request that copies be mailed to anyone who received your report in the past six months or to anyone who pulled your credit for employment purposes within the past year.

Now that you know that, for better or for worse, your credit report and score are accurate, let's revisit the Fab 5! Each category represents an opportunity to improve your score, starting with payment history.

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If you paid off a collection debt, judgment or any other credit blemish, make peace with it because it'll be on your report for seven years. Make it ten years for a bankruptcy. Take your junior high basketball coach's advice and focus on the things you can control.

From now on, if you think you are going to have trouble paying off a debt or think you might miss a payment, contact the creditor immediately to arrange payment options. Often times, they will work with you. If this doesn't work, contact a legitimate credit counseling agency to help. The best way to avoid a scam here is to pass the company's name through the BBB database at www.bbb.org.

What's important is that you get current on your loans and credit cards and keep making your payments on time. The longer you do this, the faster your score will soar.

For amounts owed, know that the quickest way to raise your score is to pay down your revolving debt, such as credit cards. Closing unused cards won't make your score spike and opening new lines of credit to spread out your debt often makes a negative credit impact. Opening several new accounts can lower your average account age, this can reflect negatively on your score.
 
Of course if your score is low because of limited or blemished credit history, opening a new credit account to use responsibly will raise your score in the long run.

Does it Seem like there is no simple solution? Here's simple for you: make a budget and hide your cards until the debt is paid. Once you're on the right track, you might just realize that credit can be a friend rather than a foe. I mean, what's a weekend at the river with the ladies without a wicked speedboat to drive?