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Visit www.myfico.com to get your FICO® credit scores and your credit reports instantly online for a fee. This site has your individual credit reports from Equifax, Experian, and Trans Union – and with each credit bureau report you buy, myFICO gives you an individual FICO® credit score. At last check, the cost of obtaining the three credit reports and your three FICO® credit scores at www.myfico.com was $49.95.

I do recommend getting all three reports, as sometimes one agency’s credit report may list certain accounts or information about you that is not contained in the other credit bureaus’ reports. And you obviously want the most comprehensive information contained in your credit files. Thanks to the FACT Act, you’re also entitled to obtain your credit reports free of charge by logging onto www.annualcreditreport.com. At this web site you’ll also find your credit files from the “Big Three” credit bureaus – TransUnion, Equifax, and Experian. These credit agencies also offer a credit score, known as the VantageScore, which I’ll address later in this chapter. For now, however, let me explain everything you need to know about FICO® scores.

What is a FICO® Score?

For those of you who are unfamiliar with credit scores, you should know that practically all lenders use credit scores. Some 75% of all mortgages lenders use FICO® scores and 98% of the top 50 credit card companies use FICO® scores to determine whether or not to grant consumers loans, making FICO® scores the most popularly used credit scores in the country. FICO® stands for Fair Isaac Corporation. That’s the Minneapolis-based firm that developed the credit scoring software used to assess your creditworthiness. In short, banks and other financial institutions look at your credit score to determine whether or not to extend to you a mortgage, an auto loan, credit cards, and so forth. FICO® scores range from 300 to 850. The higher your score, the better a credit risk you are deemed. Translation: the higher your score, the more likely it is statistically that you will pay your debts on time. Therefore, those with better scores save money because banks will make lower interest loans to those consumers than they will to others with less-than-stellar credit records.

For instance, look at the difference in borrowing costs for anyone getting a $300,000 fixed rate, 30-year mortgage:

Source: myFICO.com as of March 2010

As you can see from this example, a borrower with top-level credit would pay $299 a month less than a consumer at the marginal end of the credit ladder. That’s an annual savings of about $3,600, no small chunk of change. And when you think about that savings magnified over 30 years – to the tune of $107,984 – it’s clear that it pays to protect your credit.

While you can call a credit-reporting agency, such as TransUnion and get your credit report, I think the best thing for consumers to do is to use www.myfico.com. Here’s why: Not only will you learn what information is contained in your credit report, but you’ll also get specific recommendations – straight from the horse’s mouth, so to speak – on what specific steps you can take to improve your FICO® score over time. Plus, you’ll learn how to use your credit score; and it’s here where the www.myfico.com site is a most valuable resource.

At www.myfico.com, you’ll find loads of information that tells you how to leverage your FICO® score to full advantage by shopping around for the best-rate loans. There are plenty of pointers on how to improve your credit standing, data about how lenders view consumers with similar credit profiles to yours, and even tips on how to guard your credit by thwarting identity theft. FICO® also offers an insightful, free 17-page online guide called “Understanding Your Credit Score,” along with “FICO Forums” an online community where you can post credit-related questions.

Additionally, the FICO ® score simulator – available online after you purchase your credit report – is a handy tool that lets you see the impact of certain actions on your credit score. For instance, using the FICO® score simulator, you can see how your credit score might improve (or worsen) if you do things like pay off all your debts, or (heaven forbid) miss a payment in the future.

Finally, if you can’t afford to purchase your credit report from Fair Isaac – or any company for that matter – the www.myfico.com site gives you free access to the FICO® score estimator. You answer 10 questions online and then Fair Isaac gives you its best determination, within a given range, of what your FICO® score is likely to be. At least this gives you an idea of where you stand.

Now that you have some background information about why you should get your credit report and FICO® score, let’s talk about some of the biggest misconceptions regarding credit scores. As a consumer, your credit is of such critical importance that you can’t afford to operate on the basis of false information. For starters, realize that you do have the power to upgrade your credit profile. “Your credit score is something you can improve – with time and discipline,” a former Fair Isaac spokesman, Ryan Sjoblad, once told me. The next section tells you the real truth about credit scores.

Next – Day 4:  Order Your FICO® Score (Part 2)

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