ConsumerWatch

SAN FRANCISCO (CBS 5) ― Your FICO score is the credit score most commonly used by lenders. Since so many borrowers are failing to pay debts, lenders are placing a lot more importance on that number.

The FICO score is calculated based on complicated math which takes into account the behavior of millions of consumers. But, there are ways to take control and boost your score.

It's no longer enough to hit 620. Lenders are requiring scores at 680 and above to be worthy of their money.

Peter Benavides cares about his FICO score because he eventually wants to buy a home in the Bay Area.

He believes he is financially responsible and holds strong credit. But myFICO.com tells a different story. It's an online calculator by Fair Isaac - the firm that invented the primary credit scoring system and it shows his score is lower than he expected at 602.

Benavides is surprised by his subprime status because the program says he pays bills on time and only carries $1,500 in debt. Believe it or not, the problem is with his lack of plastic.

Jen Crawford with myFico.com explained, "His number one factor or biggest problem is he's using 95 percent of his credit cards."

Because Benavides puts purchases on only two credit cards, it gives lenders the idea that he is maxed out and more likely to miss payments. If he opens a third card that debt will spread out.

As long as Peter continues to use 50 percent or less of his available credit his FICO score will rise.

"He can easily reach the low 700s within a couple years," Crawford said.
Peter Benavides looks forward to the challenge.

"As long as I know ways to improve my score I'll feel more confident for the future," He said. "There is a price to pay and you have go to with it. You have to prove you are responsible enough to obtain a good credit score."

As for girlfriend Jessalynn Castaneda, it's not plastic that poses a problem to her credit score. Her amount of debt is considered "good" because it's well under $2,000. She holds five credit cards, but does not run them up with debt. But her score is lower than she thought at 611.

Her FICO score is hit by late payments on two bills from two years ago. Late payments dating as far back as seven years are among the biggest factors lowering FICO scores.

But Crawford said the good news in Castaneda's case is, "Within two years if she does exactly what she is doing now, has no more late payments. Doesn't open up new cards and keeps her utilization amount at 50 percent, she'll be in the low 700's."

Castaneda said she can do that especially if a higher score means the interest rates she pays for credit cards will drop from 19 percent to below 10 percent.

"I don't spend much using credit cards," she said. "I'm being careful."

There is good news for consumers who make a rare late payment. The 2008 algorithm for FICO scores will be more lenient on people who make a single late payment when they hold an otherwise strong payment history.

The bottom line is, to boost your FICO score, you need to build a credit history, keep debt below 50 percent of your credit availability, and pay on time. Keep in mind; each credit bureau (Transunion, Experian, Equifax) may hold different information filed by lenders. So, your FICO score may vary by 10-20 points depending on which one is used to calculate your number.

If there is a wide discrepancy, check to make sure your credit reports don't hold inaccurate information.

Credit score services like myFICO.com can cost anywhere from $10 to $40 depending on the extent of information it offers. Jen Crawford said it's a good idea to check your FICO score at least three months before a big purchase, but it's not necessary to obsess about it by checking every month. Once a year should be enough to monitor your FICO score as you work on improving it.

"Managing your score is like managing your weight. You have to be disciplined. It's not a fad and you have to understand it to be aware and own it," Crawford said.

As for Peter Benavides and Jessalynn Castaneda, if their relationship builds along with their credit scores a house will be much easier to afford. The payment on a $500,000 mortgage with their current credit scores would be $4,200 a month.

But with FICO scores in the high 700s Benavides said, "It would be at 6.8%. I'd pay $3,286 a month. That's a thousand less."

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