Thanks for the post. I read both Liz and Tim Middleton on MSN regularly, this is great information during times of the incredible shrinking credit limit.

So I guess we all need to recheck our FICO scores in 2009. I wonder how long the conversion process will take.

But it still doesn't say how they're calculated!
Or what we can do to maintain our highest legitimate FICO score.

Some things are common sense -- pay your bills!
But others aren't at all.

For example, is it better to have 3 credit cards or 1?
Better to carry a small balance and pay every month? Or to pay it off in full every month? (For FICO purposes)
Better to have a car loan or not to have one?
Is it better to have a very high credit limit that you never use?
How are credit inquiries factored in? (Especially ones that happen for reasons *other* than application for credit.)
How to they rate self-employment? Contract work?

Actually, if you read the article carefully it's pretty clear. FI is not going to give out its exact procedure for rating credit; that's always been proprietary. And as Tricia points out in the Household Forum, most financial institutions use the FI score IN ADDITION to their own financial underwriting.

The basics of credit underwriting have been outlined by many financial columnists for decades. For those who are starting out, those basics are:

- When establishing credit, charge a purchase on a credit card (revolving loan) and pay it back faithfully every month. A year's time is a good minimum. After that, go ahead and pay the card balance off every month. But you need to establish that regular reliability FIRST.

- Your first car loan (installment loan) helps widen your record of creditworthiness. A few more after that also help, but as your credit record strengthens, it becomes less important.

- Your credit balances vs available credit is a critical percentage that is closely watched for creditworthiness. Like insurance, banks want to give the most credit to people who need it the least. Therefore, the more credit available you have but the less you use it, the better.

- The article states clearly that FI has backed off from their initial idea of not penalyzing consumers for excess credit inquiries. Therefore, it suggests being cautious about applying for credit.

- Again, the article clearly states that it makes no difference whether you carry a balance or pay it off every month. It is the utilization percentage, averaged over time, that creditors care about.

To worry excessively about your FICO score is unnecessary for most people. Only those who have been turned down for credit or are under tremendous financial pressure that may result in bankruptcy, need to be concerned. Those people should take steps to ensure they understand how their credit is scored and learn how to improve it.

My DH and I had to file bankruptcy in 1993. It was a painful process clawing our way back to financial prosperity. We had to rebuild our credit, step by step, and accept high interest rates in the beginning because we were "damaged goods."

Now we have excellent credit, have no trouble getting loans or charge accts (just got the instant approval amazon.com Visa, in fact); I feel pretty safe in assuming our FICO scores are sufficiently good to take care of just about any credit need we might have. But what the exact score is, I don't know and it isn't important. The score changes CONSTANTLY, you might be a 698 one month and a 715 the next.

All that matters is, if you needed to access credit tomorrow, can you? If yes, there's no need to worry further. If not, then you should feel compelled to take action to improve your credit access.