by Kelly Eargle

Question: What is a "FICO" credit score and how does it affect my ability to finance a car? I have had a few credit problems in the past. - Georgia C.

Answer: Your FICO is your credit score. FICO is a product of Fair Isaac Corporation, hence the name FICO. While there are other consumer credit rating agencies and rating products, FICO is by far the most commonly used by auto lenders. It is also widely used by leasing firms, mortgage lenders, property rental firms, utilities, potential employers and others who want to gauge your financial status.

Your FICO score is based on analysis of your credit files and history. From this you are assigned a score between 300 and 850. The higher the score, the better. While you often can be granted an auto loan or other credit with a lower score, a higher score frequently can result in a lower interest rate.

In early 2008, Fair Isaac developed a new method of calculating its FICO score. The new method, FICO 08, generates your score and ranks you on a risk-based system, predicting the likelihood that you might default on your loan. Risk factors analyzed include the number of credit cards you have, types of loans made to you, payment history, total indebtedness, etc. In general, the greater the variety of types of credit you have had and handled well, and the lower percent of your usage of credit made available to you, the better will be your risk profile.

You can start improving your FICO score in a variety of different ways:

1. Make it a habit to pay your bills every month; if you are having problems doing so, then contact a legitimate credit counselor.
2. Keep balances low on credit cards; outstanding debt affects your score.
3. Pay off debt rather than moving it around; owing the same amount with fewer accounts may lower your score.
4. Do not close unused credit cards; this will not increase your score.
5. If you have had problems, do not try to open more credit cards to increase your credit available; this just increases your risk profile.
6. Start now. Remember, even when you close a credit account with which you have had trouble, it still shows up on your credit report for years to come.

Kelly Eargle is an auto financing expert with the Credit Union of Colorado, which has a local Lakewood branch. Email your question to EargleK@cuofco.org. Not all questions will result in publication.