New York Times article-One Thing You Can Control: Your Credit Score

By Ron Lieber

It’s been nearly impossible to think about much other than retirement, college or other savings in recent days. The pain has been all too acute and, unfortunately, the damage is not contained. Lurking beyond the devastation in the markets are other problems, like the fact that consumers are having an increasingly hard time getting loans.

I know it seems odd to think about your own creditworthiness at a time like this. Isn’t borrowing what got the world into this mess in the first place?

Your credit score, however, is something that you have a fair bit of control over, since it reflects your behavior as a borrower. Right about now, focusing on something within your control may feel like real progress. Last week, we started down that road with a look at budgets and spending, and there’s more to come.

Credit matters if you need a new mortgage because you have to move for your current job (or a new job if you lose your old one). It matters for many of the loans you may use to send a child to college. And it matters if you need to use credit cards for a time because your income has fallen or disappeared and there is no other option.

You don’t always know ahead of time when your creditworthiness will be a factor. But if an immediate need to borrow emerges, which it may for any number of people in the coming months, there will be no time to fix any problems. That’s why it’s a good idea to focus on it now.

Lenders are already rendering harsher judgments, and they’re likely to get even tougher. The Federal Reserve Board survey of senior bank loan officers in July, the most recent such survey, showed tightening lending standards across every major loan category.

“It’s a 10,000-decibel wake-up call and a slap in the face to people who viewed credit as a right rather than a privilege,” John R. Ulzheimer, the author of “You’re Nothing But a Number.”

That number he wrote about is the almighty FICO score. A company called Fair Isaac supplies the formula that generates the score. The three major credit bureaus, Equifax, Experian, and TransUnion, create their own versions of the FICO score using data from the credit reports they keep on you. They also, confusingly, create their own alternative credit scores, but more about those another time. For today’s column, the term “credit score” is synonymous with FICO score.

If you want to see the credit history that serves as data for the score, you can get a free copy of your credit report free each year, once from each of the bureaus, at annualcreditreport.com. If you want to see the FICO scores themselves, you can pay $47.85 for the three of them at myfico.com. Click “products,” then select the “FICO Credit Complete” package.

The median FICO score is roughly 720, according to Fair Isaac, though that number will probably drift a bit lower in the coming months. That’s a good SAT math score, but a score at that level may cause some problems as lenders get more strict.

So first, let’s review the new standards in a few major lending categories, keeping in mind that banks do make exceptions in some cases. Then, let’s look at some tips for improving your credit standing.

CREDIT CARDS If you’re looking to get the best interest rate or some of the richest reward offerings, representatives from card shopping sites like cardratings.com and creditcards.com figure you will need at least a score in the 720 to 750 range right now.

For a card with a credit limit of $20,000 or $25,000, a score closer to 700 was often adequate until recently, said Mr. Ulzheimer, the author, who is also the president of consumer education for credit.com, a credit information and application site.

The Fed loan officer survey said that 65 percent of domestic banks had tightened lending standards for cards, up from 30 percent in its April survey.

AUTO LOANS It’s not easy to get one right now. In 2007, 83 percent of people who applied for one got one, according to CNW Marketing Research of Bandon, Ore. The approval rate this year? Sixty percent, through Oct. 8.

Meanwhile, the minimum credit score required for the very best rate was 786 at the end of September according to CNW, up from 741 a year ago. Marc Cannon, a spokesman for AutoNation, the largest car dealer in the United States, added that there was no magic number for good rates, because it could depend on car type, cost and loan length.

MORTGAGES Here, it’s especially hard to come up with a bottom line number, because different entities (lenders, mortgage insurers, Fannie Mae and Freddie Mac) can add fees or dictate terms. In general, the bigger your down payment, the better chance you’ll have at getting the best available rate, as long as you have a credit score of at least 740 or so.

If you can’t come up with a big down payment, there are still loans available. There is one bright spot for borrowers: The Federal Housing Administration backs certain loans that lenders make to borrowers with down payments of as little as 3 percent, even if their credit scores are below average.

If only such programs were available for lower-scoring people elsewhere. Until they are, your score remains crucial, and there are a number of things you can do to improve or preserve it.

CHECK FOR ERRORS First, examine your credit report for accounts you don’t recognize. If you find any, it may be a simple error, but it could be a sign that a thief is opening new accounts in your name.

You’ll also want to look for any incorrect indications of late payments or other black marks. If you find any, report them to the credit bureau, since the errors are probably hurting your credit score. They are supposed to respond within 30 days.

PAY ON TIME It’s obvious, but it’s also crucial, because payment history accounts for about 35 percent of the FICO calculation for the general population (it could be more, or less, for certain individuals though). Just 60 or 65 percent of credit reports show no late payments, which means a lot of other people are still messing this up.

It’s easy to get lulled into complacency when, say, doctors’ billing services decline to report you to the credit bureaus for ignoring their bills for three months. Sure, they may be lenient, but don’t think that a mortgage company won’t report you for being a single day late.

If you have trouble remembering to send in bills, pay them automatically each month through your bank account or credit card. Then, pay the card bill automatically as well each month, or set multiple reminders for yourself to pay that bill on time.

REDEFINE YOUR DEBT About 30 percent of your score reflects the amount of money you owe. If you pay your credit card bills off each month, you may think that you’re home free on this front and that your debt is zero.

But that may not be the case. The credit report data used by the FICO system show your credit limit and your end-of-month balance, before you pay the bill. If you have just one credit card with a credit limit of $5,000 and you’re spending $4,000 each month, that can rough up your score, even if you’re paying it off in full every month.

Mr. Ulzheimer, the author and credit.com educator, suggested that if you were applying for any sort of loan or card soon that you put away your other cards for a few months so that you show no balance at all. If that’s not possible or practical, lower your spending so that your monthly bills are no more than 10 percent of the available credit on all of your cards. It also may be worth asking for a higher limit on a card or two, just to improve this ratio.

BEWARE OF RETAIL CARDS Given the overall economic environment, you’ll probably be looking for savings everywhere you can find them come holiday gift-shopping season.

But stay away from those deals offering 10 percent off when you open up a store credit card account.

These cards can hurt your credit score if you open too many in a short time, and their credit limits tend to be lower than standard credit cards, Mr. Ulzheimer noted. That can contribute to the same problem he addressed in the section above.

So use an existing credit card. Or spend cash. Better yet, give cash. It may come in even handier than a great credit score in the coming months.

Copyright (c) 2008 The New York Times Company. All rights reserved.