A Suze Orman exclusive

Have you ever wondered why you pay 18 percent on your credit card debt yet your friend pays only 5.9 percent? Or why every time you try to refinance your home the interest rate you are quoted is so much higher than what you read about in the paper? Most likely the culprit that is keeping you from getting those great rates is your FICO SCORE.

Have You Been FICO'd?
You bet you have. When credit card companies, car and mortgage lenders, landlords, insurance companies, and even cell phone companies sit down and figure out if they should do business with you - and if so at what interest rate - they depend on three numbers known as your FICO score. The higher your FICO score the lower the interest rate you will pay. The lower your FICO score the more you'll pay. It is that simple. So all of us have been FICO'D in one way or another.

How Low Can You Go?
FICO scores range from a low of 300 to a high of 850. But if you have a score of anything below 500 you are considered a financial nightmare and are thrown into the "sub-standard" interest rate category. So in reality there are essentially only six ranges of FICO scores that count. Starting from high to low here they are:

850-720
719-700
699-675
674-620
619-560
559-500

Who, What, and Why?
Your FICO score, which is better known as your credit score, comes from a company that was started back in 1956 called Fair, Isaac Corporation. Fair Isaac was the creator of the credit scoring system. This system simply tabulates your score based on how good - or bad - you are at managing your debt. Your score reflects whether you pay off your credit card balances each month, whether you pay other bills on time, how many cards you have, and what percentage of your credit card limit you use each month, as well as a number of other algorithms that they call their secret sauce. All that information is provided to them from the three credit bureaus that track just about every financial move you and I make.

This score is a present day predictor of your future ability to pay back money that you want to borrow from them. This number indicates to the lender if you are going to pay that money back on time and in full, or if chances are you will default. The more of a risk they think you are the higher the interest rate they will charge you to make up for any losses they may sustain because of your failure to repay.

You Scored Three Times
I imagine your head is already spinning, but it gets a bit crazier. You not only have one FICO score you have THREE. You read that right! As you may know there are three credit reporting bureaus: Equifax, Experian and TransUnion. Every time you pay a bill and more importantly when you don't pay a bill it is reported to at least one of the three bureaus. Notice I said "at least one of the three." That creates a bit of a hassle for all of us because not all of your creditors report to all three bureaus. One may report to Equifax, one may report to TransUnion and another may report to Experian. I have no idea what they were thinking when they set up that system but I won't digress. What's important to understand is that because of this nutty system you have three credit reports and thus three credit scores from FICO. And you need to know your score from all three credit bureaus; especially if you are applying for a mortgage. (See my FICO Tips below.)