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You think your SAT score was important? Your credit score is the granddaddy of all grades. This three-digit number (generally ranging from 300 to 850) is used by lenders to judge who might be a good credit risk. The higher the score, the lower the risk -- and the lower the interest rate you might pay on a home or auto loan.

It wasn't too long ago that consumers, for the most part, were barred from seeing their credit score. Now, for a fee you can obtain your credit score.

What factors are used to determine your credit score? Do you know your score?

Join personal finance columnist Michelle Singletary and her guest, Craig Watts, spokesperson for Fair, Isaac and Co., to learn some of details that might help you understand your credit score and improve your grade. Fair, Isaac and Company is the largest provider of consumer credit scoring models used in credit approval.

Singletary has been tackling personal finance issues in her column, 'The Color of Money,' for The Washington Post since 1997. She is also a contributor to "Insight" with Herman Washington on 96.3 WHUR-FM. Every month, she also hosts her own personal finance book club.

The transcript follows.

Editor's Note: Washingtonpost.com moderators retain editorial control over Live Online discussions and choose the most relevant questions for guests and hosts; guests and hosts can decline to answer questions.

Michelle Singletary: Welcome again to a discussion about money. I love today's topic because it's so important that everyone that uses credit understand the credit scoring system now in use. So let's get going.

Washington, D.C.: Thanks for taking questions...

About 5 years ago, I had trouble keeping up with a few bills, all of which became charge-offs. Since then, I've been paying those debts off so that my report says paid charge offs. In addition, I have been paying active and open bills on time every month for 5 years. But until the magic 7 year period ends, can I improve my score any more than what I'm doing now?

Craig Watts: It sounds like you're doing just fine to reestablish a good credit score. The three keys are: pay all bills on time, keep your credit card balances low, and don't take on more credit that you really need. If you do those three things consistently, your FICO score will slowly rise over time.

Michelle Singletary: I hear parents say all the time that they think their teen or college student NEEDS to establish credit so that's why it's important they have a credit card. But how long does it take to establish a good credit paying history that would then lead to being offered the best interest rates?

Craig Watts: It takes six months from the time you first open a credit account until enough information is in your credit report to produce a FICO credit score. College students and others who are new to credit can have excellent FICO scores if they manage their credit responsibly. A key for young consumers is to resist social pressures to overspend or run up debt, and use credit sparingly until you have a consistent income source and can handle more credit.

Washington, D.C.: I've heard conflicting information about credit card accounts: Having too many open accounts hurts your score/Closing them hurts your score. The former makes more sense to me. Should one close dormant accounts over a period of time
rather than all at once?

Craig Watts: You should manage your credit cards according to your own needs. Most lenders today don't worry about how much credit is available to you, but rather they look at how you manage the credit you do use. The FICO score works that way too. If you need to close one or more credit cards by all means do so, but be aware that this can lower your FICO score if you don't simultaneously pay down the amount you owe. Closing cards gradually over time can probably soften the effect on your score at any one time, but unless you're just about to apply for a major loan and want your score to be in tip-top shape, it probably isn't worth the bother.

Michelle Singletary: What can a consumer do if they realize that a company (lender) is not reporting their GOOD payment history to the credit bureaus?

Craig Watts: Since the credit reporting system is a voluntary one for lenders, none of us can force a creditor to report our credit history to the credit bureaus. However, you can certainly contact your creditor and ask it to report your payment record to all three national bureaus. It's possible that its non-reporting was simply an oversight that you can correct by bringing it to the creditor's attention.

Baltimore, Md.: Hi Craig,

I have heard from people that if I don't carry some sort of debt, my credit will be affected. Currently I have no debt whatsoever. The only "debt" I may have is my monthly credit card bill, which I pay in full monthly. Seeing that I am planning to purchase a home in the next few months, will this affect my chance of getting a loan? Other information, I own my car and I have a over $100K in savings.

Michelle Singletary: You need to get better informed friends!!!

Craig Watts: I agree with Michelle. People who have the very highest FICO credit scores tend to use their credit sparingly and always pay their bills on time. You don't have to carry debt in order to have a good credit score, you just need to have a good track record of past credit management. The best way to know your own credit rating is to check it out on our consumer Web site www.myFICO.com. The cost is $12.95 for your current FICO score, the credit report it was based on, and our analysis of your score including how you can best improve it (if necessary).

Washington, D.C.: Submitting early hoping you'll take this question. My credit score is below average, 665. Two years ago, I missed a number of payments due to limited income. I realized this was not a good solution but the damage was done rather quickly. However, since then I've paid bills on time, and I've paid off about 50% of my debt (credit card). I hope to have the rest paid off with a year.

My question is this: I know the negatives stick with you for seven years, but assuming I don't repeat those mistakes, will the negatives on my account be minimized eventually by the amount of time that has passed?

Craig Watts: Yes, our credit slip-ups fade in importance to our FICO scores as time goes by. That's one of the big benefits that credit scoring has brought consumers: lenders no longer focus on our stumbles, but rather on what our more recent credit actions say about our credit skills.

Washington, D.C.: Do credit repair companies really work?

Craig Watts: No one can "repair" your credit rating or your credit report. You can review your own credit reports and quickly see any wrong credit-related information -- and have it changed or removed without paying anyone a cent. Services that claim they can fix bad credit or artificially raise your credit score are promising results they can't deliver.

Washington, D.C.: What's the main thing people forget about when considering their credit score?

The only thing that I could see keeping me from a perfect score is that I probably don't have enough credit history.

I'm never late with bills, credit cards, etc., but I've yet to make any big purchases such as a home or a new car.

Craig Watts: Getting a good credit score is really simple. 1) Pay your bills on time every time. 2) Keep credit card balances low (at least below 50% of your credit limit). 3) And only take on as much credit as you really need. You don't have to buy a home to get a good score. But it does help a bit if you show that you can responsibly handle different types of credit, such as both a credit card and some kind of installment loan (where you pay the same amount every month until the loan is paid off).

Madison, Wis.: Does FICO consider how much money one earns, their age, length of time at a particular residence, whether they rent or own, and/or how long they've been working for a particular company? If not, do companies offering credit consider these things on their own and factor that along with the FICO score?

Craig Watts: Every factor that you listed is ignored by FICO scores. The FICO formula pays attention only to what your credit report says about the way you've handled credit in the past and the current status of your credit obligations. Some quick credit decisions are made on the basis of only a FICO score -- such as when you're offered a credit card at the check-out register of a dept. store. But most times, lenders want more information before making their decisions, such as your income (capacity to repay money you borrow from them).

Fayetteville, AR: Why does the FICO scoring system punish those who pay their debts (albeit late) the same as those who simply skip out on them? There is no scoring difference between a paid chargeoff and a chargeoff.

Craig Watts: Actually your FICO score can benefit when you pay off overdue accounts. But the fact that you were late weighs much more heavily, so you might not notice the lift you get in your score from paying off such a debt. Other lenders also are likely to be kinder about your missed payments if they see that you eventually did make good on your agreement to repay.

Annandale, Va.: How does being a cheapskate frugal boomerang child affect your credit score? I moved back home after college, so I haven't paid rent to a landlord in years and I drive a 12 year old car so there hasn't been car loan for ten years. I do have one credit card that I pay off completely every month and have never ever even come close to my credit limit. I'm looking to buy a house, so I'm wondering if being "too good" can count against me.

Craig Watts: So long as you're responsibly handling the credit you do use, your FICO score will benefit. The only sure way to know for sure how well you're doing is to check your current score and get an expert analysis. Some lenders will help you in that direction if they believe you're serious about applying for a mortgage. But the quickest way is to buy your score online. Just make sure you're getting the FICO score, and not one of the many look-alike imitations that lenders don't use.

Arlington, Va.: Craig - I checked my credit and got my credit score a few weeks ago using your myfico.com. It was easy to understand and affordable.

I did have a few concerns about what I saw in the report. A few accounts were shown as still active despite having been closed (I closed a regional department store credit card when I moved). Other accounts were listed multiple times for a simple, and single, revolving credit card account. Should I worry about either of these or seek to correct?

Thanks for your help.

Craig Watts: Credit reports can be confusing. We're working to simplify them in our consumer products but there are a LOT of variables to account for. For example, you might see a credit account show up more than once if you had a credit card replaced after it was lost, or if the company issuing the card to you was bought by another company. Best bet is to check with the credit bureaus themselves for answers since they're the experts on credit reports.

Arlington, Va.: If I request a copy of my own credit report, does it count as a "strike" against my credit; is it reflected as a negative.

Craig Watts: Nope, you can check your own credit report and FICO score until the cows come home and it will never affect your FICO score. The only credit checks that the FICO score notes are ones by lenders who are responding to your own request for credit.

Derwood, Md.: Michelle -

I have a beef with you. It seems that, while you frequently mention the need to check credit reports, you never mention that Maryland residents can get a copy of their report for FREE.

Maryland's Commissioner of Financial Regulation says that "Maryland residents are entitled to free copies of their credit reports once every twelve months upon request and proper identification."

Michelle Singletary: See that's why you should be a vegeterian. I have mentioned in my column that Md. residents can get their credit card for free once a year. I've also told residents of Colorado, Massachusetts, New Jersey, and Vermont the same thing. If you are a resident of Georgia, you may receive two free copies of your credit report each year from the credit bureaus. In fact, I state those facts in my column for this coming Thursday in the Post. In that column I explain some basics about credit reports. So am I on your good side now?

Craig Watts: Agreed.

Washington, D.C.: I asked the question about credit repair companies, because I went through a credit repair company and they raised my credit scores by over 100 points

Craig Watts: It's possible to raise a FICO score that much in a short time if negative information on your credit report was put there in error, and then removed. But you don't have to pay anyone to make that happen. Just get copies of your own credit report from all three national credit bureaus, and follow up with them if you see information that you think is wrong.

Glendale, Calif.: Why is that FICO will hold negative info against you for 7 years or more and felons and other criminals are punished less for more severe crimes?

Craig Watts: Now THERE'S an interesting comparison. The seven-year rule was imposed on the credit bureaus by the federal government. FICO scores use the information on credit report, but have no control over what goes on your credit report in the first place. You control that by the way you handle your credit.

Bethesda, Md: I'm concerned about the privacy aspect of credit scores-- what information does someone have to provide to get (for example) my credit score?

Craig Watts: The federal government set up the rules by which businesses can see your credit report, with careful consideration for every consumer's privacy. For more on that subject, you might check out the information on the Web site for the Federal Trade Commission.

Boston, Mass.: What are good ranges for a FICO score? I was told by my mortgage company that my score was 779 and that was good for my age (29). are scores really age dependant?

Craig Watts: Half of all U.S. consumers have FICO scores above 720 or so, and most lenders will tell you that any FICO score above 700 is a good score. A score of 779 is really excellent. Only 1% of the population scores above 800! Scores do benefit when your credit report shows that you've managed credit well for many years, but the FICO score doesn't know your actual age.

Gaithersburg, MD: I always get a variety of answers to this question and hope you can clear it up for me. When I use my Visa Check/Debit card is that reflected on my credit report? Thanks!

Craig Watts: It will show up on your credit report if your creditor reports your activity to a credit bureau. Only way to know for sure is to check your own credit report.

Bethesda, MD: Craig, please advise:

My husband and I are in our young 20s and we are returning to graduate school this fall to earn PhDs in engineering. We will live near the university in Pennsylvania for 5 years while seeking our degrees. Combined income will drop from 100K to less than 30K annually.

We want to buy a house near the university since mortgage payments will be less than rent for more space. We have zero debt, have always paid our bills on time, and have 100K+ in savings/investments. We plan on making at least a 20% downpayment on the house. Do we have a chance of getting a loan?

Craig Watts: What you're described sounds positive, but the only way to know for sure is for you to ask a lender or mortgage broker.

Washington, D.C.: How does the "middle score" concept work (which is big with mortgage companies), and why would there be a difference in FICO scores between the 3 major credit bureau's? The only thing that I can think of is that all businesses that extend credit don't, or may not, subscribe to all 3 bureaus. Your thoughts?

Craig Watts: Many lenders want to see your FICO score from all three national credit bureaus before approving your loan application. Since the credit bureaus don't share information with one another, what is in your credit report can differ between the bureaus, causing your FICO scores also to differ. Conservative lenders may look only at the lowest FICO score when making a decision, while lenders who want to attract more borrowers may look at the highest FICO score (and accept a little more risk as a result). Accepting the middle score is a compromise that a lot of lenders choose to make.

Arlington, Va.: I have four credit card accounts open right now, totalling over $25,000 in available credit. I do not carry a balance on ANY of the cards, and in fact use only two of them (a Visa and an Amex) on a regular basis. In fact, I've never missed a payment in over seven years.

I want to apply for a mortgage in the next few months as a first-time buyer...does it hurt me to have that much credit already available already? Or is it better to keep them open and just not use them?

Craig Watts: Having unused credit won't hurt your FICO score. To make sure your credit engine is running smoothly BEFORE you apply for the mortgage, you might want to review your credit reports from all three national bureaus and get your current FICO score.

Sterling, Va.: Could you please tell me what hurts your score more? The bills are getting behind having trouble catching up and I was thinking about filling for Bankruptcy. I know that will really hurt me especially for the first 2 years but, I also know that since I'm behind and things aren't getting paid that hurts as well. I'm trying to figure out the best thing for me to do. I would love to hear any advise you have to offer.

Craig Watts: It sounds like you're in a tough situation that calls for some good, expert counsel, more than we can cover here. I suggest you contact the nearest CCCS agency (Consumer Credit Counseling SErvice) and talk with one of their accredited counselors. Easiest way to find the closest one is to go to www.nfcc.org.

Michelle Singletary: i know it's after 2 but Craig has agreed to answer a few more questions.

Los Angeles, CA: Why was Fair, Isaac opposed to legsialtion here that requires lenders to provide borrowers with their FICO scores?

Craig Watts: In the '90s we opposed efforts to expose FICO scores on their own, without explanation or the underlying credit report. FICO scores are powerful tools in the hands of lenders but they are a very different creature from the kinds of scores most people know. We insisted for years that only lenders should explain scores to consumers, since lenders are in a position to know whether the score qualifies you for a loan, and where weaknesses might lie in your credit report. We decided to provide scores directly to consumers ourselves when it became clear that some lenders didn't want that responsiblity, and to make sure consumers could go to at least one place for the real story behind their personal FICO score.

Washington, D.C.: Hi Michelle and Craig. I recently sent a letter to all three credit bureaus to initiate an investigation into an "unpaid" utility bill. I received my first response from Equifax (in my favor) and an updated credit report correcting the error. I was astonished however, to see the number of organizations/companies that have made inquiries into my credit history in the last year (more than 50). Three of them were from mortgage lenders because I just purchased a house last summer, but the majority of them were from companies I've never even done business with and/or heard of. Do the number of inquiries made into your credit affect your FICO score? And is this normal to have that many inquiries made into my credit history in such a short period of time?

Craig Watts: Your credit report shows ALL the times that businesses have asked to see your credit report. The only ones that are considered by FICO scores are credit checks by lenders in response to your own credit requests, such as your mortgage application. Businesses also check your credit before sending you promotional offers and in the normal course of managing your account with them. Those types of inquiries will show up on your report, but are ignored by the FICO score.

Dallas, Tex.: I have several old charge off accounts that are still reflecting a past due balance. Do these past due balances prevent these accounts from aging and causing FICO to consider these as current charge offs instead of charge offs from several years ago? I know that as a negative account ages it doesn't hurt your score as much as a current negative item, but this one is a little tricky and I can not seem to find a specific answer.

Craig Watts: The aging of your credit accounts isn't affected by whether they still show a balance due. Age and amount owed are separate factors for the FICO score.

Arlington, Va.: My husband I normally keep our credit usage to a minimum and pay the balance every month. However, in the past few months, we have had to make some pretty big purchases (we're expecting our second child in a month) to get our toddler ready for the next phase in his life (new furniture, mattress, etc.). Will our FICO score be affected if we stop using the cards for the next few months while we pay off the balance? This will be the first time in nearly ten years' marriage that we won't be able to pay the balance in full for about three months (it is currently at $3,000 and we intend to pay between $500 - $1,000 a month until it's paid for).

Craig Watts: Your FICO score will be just fine if you stop taking on new debt for awhile and concentrate on paying down outstanding balances. In fact, that strategy will more than likely raise your score so long as you get your payments to the creditors on time.

Washington, D.C.: Thank you for taking my question.

I made a classic early 20's blunder and let an old boyfriend use an calling card I had in my name. Needless to say, we broke up and, out of spite, he ran the bill sky high. I cancelled the card, but the debt was still put on my credit report. He and I fought back and forth over it for a few years before I decided to just cut him off and pay the bill myself.

This balance is doing major damage to my credit and I'm not sure of the best way to handle it. Should I drain my savings and pay it off in one lump sum, or try and work out a payment plan with the phone company? This is the only glaring debt I currently carry.

Craig Watts: It sounds like your decision involves more than its possible impact on your FICO score. But where your score is concerned, you'll help it the most if you pay your creditor what you currently owe now, rather than let an overdue account continue to get more overdue. FICO scores aren't affected by what's in (or not in ) checking accounts or savings accounts.

Washington DC: What could be done to clean up a low credit score?

Craig Watts: That's a big question. You can hear what Fair, Isaac thinks based on its analysis of your credit report and FICO score, by going to our Web site and buying our "Single Bureau Report with FICO Score." Or you can see an accredited credit counselor who will go over some of that same ground with you in person. Best advice is to get started today, since every low credit score can be improved but it usually takes time and persistence.

Baltimore, Md.: My credit score isn't great due to past bumps and bruises. I'm trying to improve it. However, my fiance has excellent credit. How should we handle our situation in terms of getting the best rates for things like cars and homes? Should he buy things alone and add me later? Or shall we buy things together and get a worse rate due to my score?

Thanks.

Craig Watts: That's a more common situation than you might think. Your best bet is to be up front with potential lenders, and shop around by talking with different lenders. Sometimes the best strategy is to take out the loan in the name of the person with the better FICO score, then refinance when the second person's FICO score has been improved. But every situation is different

Olney, Md.: Just a reminder that Maryland residents, along with their one FREE credit report a year (so no excuses, people!) can get a free credit score online from TransUnion. It's called a "personal credit score", but it ranges from 150 to 934, and mine was 779, which sounds the same as my FICO score would probably be.

I guess you could always start with this free one, and then if you're applying for a loan AND your score is borderline, you might want to pay for a FICO score. But why pay when you don't have to? Right?

Craig Watts: The good news is that consumers have better access than ever before to this kind of information. The bad news is that you can't always tell whether the information you're getting is accurate. FICO scores are the only scores used by most lenders today that are also available to consumers. The free score from TransUnion and all the other imitation-FICO scores available out there are ignored by lenders because they weren't created for lenders to use, they were created to sell to you and me. So if you're only casually curious about credit scoring, save your money and get one of the free scores since accuracy isn't an issue. But if you're scoping out your score before shopping for a loan, or trying to improve a poor credit rating, then you want to know your FICO score since that's the score your lender will base much of her (or his) decisions on.

Tampa, FL: Why isn't Fair, Isaac and Company required by law to reveal in more detail how it comes up with its FICO score? How are we as consumers able to best improve our credit standing if we have to manage our day-to-day credit via a bunch of rough generalities and really no specifics?

Craig Watts: FICO credit scores measure how you've handled your credit over time -- often many years -- and not how you handled credit last week. People are predictable: if you've managed credit responsibly over the past couple of years, the chances are excellent that you'll pay back your next lender on time as agreed. Getting a good FICO score is the product of responsible, conservative management of your personal credit. That's why there are a million ways to get a good FICO score. Since everyone's situation is different, you don't hear specific recipes from Fair, Isaac for exactly the right number of credit cards to hold and so on. The libraries are full of great books on how to manage your credit responsibly day-to-day, and marvelous credit counselors are just around the corner. Follow their guidance or the guidance we offer on www.myFICO.com, and you'll have a great FICO score.

Washington, D.C.: Can I ask a question about my credit? I am a 25-year-old female with student loans in the teens, two credit cards that I pay off every month, except for about a six month period over a year and a half ago when I was unemployed -- all is paid off now. I finally got my credit report and score and its in the high 600s. Is this good? What can i do to improve at this point?

Michelle thank you for your advice, I started reading this column with no background in finance and I feel like a I have an informed financial groundwork for life now! You're the best.

Michelle Singletary: The first thing you can do to improve your score is get educated on how credit scoring works. So you get a big fat "A" for doing that today. Secondly, thanks so much for your nice comment. It just warms my cheap little heart to get a note from a young person (I know I sound like someone's moher) who is reading my column and the Post business section. Thank you for allowing me to inform you!

Craig Watts: I agree with Michelle, you're doing a great job. Best thing you can do moving forward is more of the same: pay every bill on time, keep those credit card balances low, and only take on new credit if you really need it. If you stick to that pattern you'll soon have a score in the 700s with full FICO bragging rights.

Michelle Singletary: Whew! Who knew there were so many people with so many questions about their credit score. But I'm so glad. As the saying goes, information is power. Whatever you do, get a copy of your credit repor. And, if you aren't sure where you stand in terms of creditworthiness get a copy of your credit score. Most important stay informed! Thanks for joining me live today or if you're reading this later thanks for the effort. As always I'll be back in two weeks.

Michelle Singletary:

That wraps up today's show. Thanks to everyone who joined the discussion.

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