Credit Scores: What You Need to Know Now
Tighter Lending Makes Cracking the System Vital; Benefits of Paying on Time.
WSJournal September 8, 2009

You don't have just one score, but many. Your FICO score, the one developed by Fair Isaac Corp. that runs from a low of 300 to a high of 850, will vary depending on which credit bureau is reporting it and the kind of lender that requested it.

So the score that costs you $15.95 at MyFico.com may not be the score your lender sees. Beyond that, the three credit bureaus— Equifax, Experian and TransUnion— sell their own proprietary scores.

Your credit score doesn't reflect your income, employment history or your assets, which should be a part of your overall financial picture. It also doesn't show whether you pay your rent or utilities on time. As a result, a credit score is less like a report card and more like an SAT score—your results on a particular date that seek to predict your future credit success or failure.

Myth: I pay my card off every month, so I must be a low credit risk.
True, your financial habits are excellent. But they won't affect your score. That's because the credit bureaus don't have a clue whether you pay your bill in full or carry a balance on your cards each month. All they know is the amount you owed on your most recent statement.

Instead, the crucial fact is how much available credit you have used. Steve Ely, president of personal-information solutions at Equifax, says you should keep your credit use to less than half your credit limit to minimize the impact on your score.

Unfortunately, about 30% of your FICO score is based on "credit utilization," a broad term that includes how much you've used of each credit limit, how much you've borrowed as a percentage of your total available credit and even how big the dollar balances actually are.

If you're a rewards junkie, charging groceries, charitable contributions and just about everything else to get points, you may be jeopardizing your score even if you are only utilizing a small portion of your available credit.
Luckily, there's an easy solution: Cut back your credit-card use for two or three months before you plan to seek a car loan or mortgage so that your balances will be more modest.

The single most important factor in your score, accounting for 35% of the total, is whether you have paid your bills on time. One late payment will ding your score for up to a year, very late payments can hurt you for two or three years, and collections and bankruptcies can sting for up to seven years.