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Deciphering the scores

As I looked at my scores, I had a few questions for MSN Money personal-finance expert Liz Pulliam Weston:

Why do scores vary? As you'll see when you read your credit reports, each agency collects different information about your credit history.

For example, Equifax and Experian showed the public lien, but TransUnion did not.

No one knows the exact recipe the bureaus use to concoct their reports and scores. It's like the formula for Coca-Cola.

Why do we talk about a credit "score" if there are several of them? Weston says lenders typically use the middle score of the three from the bureaus -- hence the reason people talk about their "score." Some services might try to sell you a three-in-one score, but it's not based on FICO, Weston says.

What is a VantageScore? FICO is the score calculated by Fair Isaac; it's still the industry standard. But the three credit bureaus have now created a competing score called the VantageScore.

FICO is on a scale of 300 to 850. The VantageScore scale is 500 to 990.

It's sort of like when a size 10 pair of jeans became a size 8. If you get a score from one of the bureaus that seems awfully flattering, it might be a VantageScore -- that is, higher than the FICO score your lender would see.

Pros and cons of the challenge

Signing up for nine months of free scores and credit monitoring gives you a rare opportunity to view how your financial behavior has a direct impact on your score each month.

Example: MyFico.com offers a Credit Score Simulator, a tool that shows how different actions might influence your score. When I selected "making all payments on time" for six months, in theory this could boost my score by 20 to 60 points.

The important thing to remember, Weston says, is that although watching your TransUnion score is a good way to observe how your financial actions play out in your credit picture, it's only one number -- and it's not the number that lenders take into account.

Still, getting a regular credit checkup is a terrific exercise in personal-finance self-knowledge and growth.

Once you have that knowledge? Use it to try to boost your scores, which can lower what you pay for everything from car loans to utilities. (See "8 things a better credit score can buy.") According to Weston, it takes about 30 days for the impact of a late payment -- or paying off a balance -- to show up in your actual score. A few tips:

Cleaning up your reports

• Don't worry about incorrect name spellings or a gap in your reported employment history. "Those don't affect your score," Weston says.

• Focus on weeding out account errors. Dispute accounts that aren't yours, as well as incorrect balances. Accounts that are paid in full should show up as such.

• Make sure limits are correct. The more available credit you have, the better for your score.

• If an account is paid but still shows up on your report with no blemishes, don't close the account. It doesn't hurt your score and might help it.

• Request that the bureau remove late payments that are more than 7 years old or a bankruptcy that's more than 10 years old. Those old mistakes shouldn't be dragging you down after a certain point.

Cleaning up your act

• Make payments on time. That is perhaps the most powerful thing you can do to increase your scores. It's about 35% of your scores. Weston strongly recommends using automatic-bill-pay services, and so do I. (The credit card payment that was late was our only card not on automatic. Grrrrrr.)

• Pay off your balances. The more you pay down what you owe, the greater your available credit and the happier your score will be.

• Get credit counseling if you need it. Debt consolidation is no longer a black mark on your credit, and it can help you stick to on-time payments and pay down debts faster. (See "Insider's guide to debt consolidation.")

• Be cautious when opening accounts. In the course of nine months, you may have to take out an auto loan or some such, but avoid opening unnecessary accounts, as they whittle down your scores.

• Be careful of library fines, parking tickets and other seemingly innocuous fees. They may be reported to the bureaus and can ding your score, too, believe it or not.

Good luck, Credit Racers, and may the best person win! Don't forget to check in here each month at the Women in Red message board.

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