Lynn O'Shaughnessy

When we graduated from high school or college, most of us assumed that we wouldn't have to worry about a report card again. But anybody who carries a credit card is continuing to get graded. In fact, it's possible for computers to revise our grades many times a day.

For most of us, the only report card that matters now contains our FICO score. Mortgage lenders, auto dealers, credit card companies and even landlords check out our scores to determine our creditworthiness. How our scores are determined is somewhat mysterious, because they are dependent upon a black box formula that is punctured by very few peepholes.

Many Americans never glance at their FICO score unless they are in the midst of buying a big-ticket item. Even those who occasionally check their scores probably don't understand how crucial these numbers are.

While Americans seem to have no hang-up about electing presidents who are C students, lenders won't hesitate to penalize a consumer with average credit scores. If you have a so-so score - perhaps through sloppy credit habits - you could pay tens of thousands, and even hundreds of thousands, of dollars more in interest charges and lost financial opportunities over your lifetime.

"Your credit score permeates your financial life," says Liz Pulliam Weston, a financial columnist and author of "Your Credit Score, How to Fix, Improve and Protect the 3-Digit Number that Shapes Your Financial Future, 2nd edition." "The score makes a big difference."

You won't know whether your FICO credit score is in need of resuscitation until you know what the full range of scoring possibilities are. FICO scores begin at 300 (truly dreadful) and max out at 850 (probably Warren Buffett's score). Many lenders use 700 to 720 as the cutoff for bestowing upon borrowers the best interest rates and terms.

According to Weston, 58 percent of Americans have a FICO score higher than the 700 mark. About 13 percent of consumers have earned platinum-plated FICO scores between 800 and 850. Another standard cutoff is 620. If you can't manage a FICO score higher than that, lenders are going to plaster the scarlet letter on your forehead - "S" for subprime. The worst interest rates are reserved for these folks.

The scoring can be infuriating because you'll never know for sure why you're given a particular grade. There are some factors, however, that greatly influence your score. Here's how they roughly break down: payment history, 35 percent; balances, 30 percent; length of credit, 15 percent; last application for credit, 10 percent; and type of credit used, 10 percent.

Lynn O'Shaughnessy

Lynn O'Shaughnessy is the author of Retirement Bible.

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