The Number

by Matt Bell

With all the hype around the oldest Baby Boomers turning 60 this year, a number of "Number" books have hit the shelves designed to help the 78 million people born between 1946 and 1964 figure out how much money they'll need for retirement. They include The Savage Number from financial advice columnist Terry Savage and, more recently, writer/businessman Lee Eisenberg's heavily promoted The Number.

But there's another number that's arguably just as important: our credit score. That number can impact a growing list of financial quests that come well before retirement – getting a job, paying the best rate for everything from a mortgage to insurance to cell phone service, and helping detect whether someone has made off with our financial identity.

Just as doctors encourage us to keep tabs on our cholesterol; we should keep a finger squarely on our credit score pulse. And, just as our physical health is something to be managed, so is our fiscal health, which includes proactively working to boost our credit score.

Here's what to do:

Step One: Order your free credit report. Note that I said "report," not "score." Your report, which is used to determine your score, is free. Your score, maddeningly, is not. More on that in a minute.

To get a free report from each of the three main credit bureaus – Equifax, Experian and TransUnion – go to: www.annualcreditreport.com. Be sure to enter the right Web address as there are lots of imposter sites out there eager to sell you what you can get for free. If you prefer dialing to surfing, call 877-322-8228.

When ordering your report, you'll have to provide your name, address and Social Security number. Choose to have your Social Security number shortened on the report you get back so it's protected if your report is misplaced.

Next you'll select a credit bureau to provide your report and will be connected directly to that bureau. There you'll have to answer several verifying questions, such as the amount of your monthly mortgage payment.

You can get reports from all three bureaus at once. Or, if you're up for a little more work, it's not a bad idea to request a report from a different bureau every four months. Staggering your requests will help you monitor your credit throughout the year.

Step Two: Read your report. It'll never compete with your favorite novel, but when's the last time a novel saved you money? Nearly 80 percent of credit reports are estimated to contain an error such as a misspelled name, outdated address, loans that are listed twice, closed accounts marked as open, etc. If you notice an error, file a dispute with the credit bureau (instructions for doing so are provided on the report) and then notify the creditor.

If you suspect fraud – maybe you see a credit card you never opened – contact the creditor immediately. Then call one of the credit bureaus to place a 90-day fraud alert on your report (Equifax 800-525-6285, Experian 888-397-3742, TransUnion 800-680-7289). A call to one bureau will trigger the alert at the others.

Step Three: Buy your score. Yes, it seems unfair that you have to pay, but that's life. Equifax sells "FICO" credit scores, used by most lenders, for $14.95.

Step Four: Manage your number. Scores range from 300 to 850. Unlike cholesterol, the higher the number the better. On a $200,000 30-year fixed rate mortgage, a person with a credit score of 725 will pay $440 less per month than a person with a score of 525. To see how your credit score affects different mortgage amounts, go to www.myfico.com and click on the free calculators section at the bottom of the home page.

Credit scores are determined by five factors, some weighted more than others. To increase your score, here, in order of priority, is where to focus.

PAYMENT HISTORY (Counts for 35 percent of your score) Pay your bills on time. The longer you do that for, the faster your score goes up.

AMOUNTS OWED (30 percent) The scoring algorithm prefers that you use less than 50 percent of available credit. Of course, Good $ense prefers that you never carry a balance. If you have balances, lowering them will improve your score.

LENGTH OF CREDIT HISTORY (15 PERCENT) While it may seem wise to close unused accounts, from a credit score perspective, it's usually best to keep them open.

NEW CREDIT (10 PERCENT) Just say "no" to sales clerks offering a discount if you open a charge account. Opening up new accounts usually works against your score.

TYPES OF CREDIT USED (10 PERCENT) According to the wizard behind the credit score computer curtain, it's best to have credit cards and an installment loan. Someone with no credit cards is viewed as a worse risk than someone with credit cards that makes on-time payments.

If you're trying to improve your fiscal health this year, finding out your credit score is a great place to start. It’s a number everyone should know and manage.