What's Your Credit Karma?

Are you a 768? An 820? A 362 (gasp!)? A short time ago, you would have had no way to answer the ever-elusive question (and painfully unpopular pick-up line): "So, what's your credit score?"

Your credit score used to be a top-secret number known only to lending professionals. In March of 2001, the veil of credit-scoring secrecy was lifted. Now with just a click, you can see the three magic digits -- based on a formula developed by Fair, Isaac & Co. (FICO) or a handful of other credit reporting agencies -- that define your credit-worthiness. In FICOland, your number can range from 300 to 850. Anything above 720 is considered average.

Ho-hum. Big deal.

Well, it might be a big deal for you. The lending industry uses your credit score for a quick, objective assessment of consumer credit risk. (That's "credit trustworthiness," or "credit karma," in plain Fool-speak.) In some instances, this single measure can determine your fate in important matters -- whether you get a loan for that new home or car and at what interest rate, or if you qualify for the Puppy Palace Angora Visa for 10% off your first Bijon Frisse. For others, it matters not a bit. (For now, at least.)

The higher the score, the better the chance your request will be approved. According to Fair, Isaac, the FICO score is used in 75% of residential mortgage applications.

Credit score vs. credit report

Your credit score is simply a snapshot of your credit use -- it's the Cliffs Notes version of seven years of your borrowing history. In many lending situations (such as when you apply for that Angora Visa card), the lender bases its decision almost solely on your credit score. (Most use the score calculated by Fair, Isaac, the most popular of the credit scorers.) Consider your credit score the overall GPA of your borrowing history.

Your credit report is the detailed rundown of your borrowing habits. Credit reports are provided by three major credit bureaus: Equifax, Experian, and TransUnion. The information in each is used to calculate your overall credit GPA (credit score). Most lenders don't care about the details of your credit report. They just want your overall score. However, you should care about your report. If you want to raise your overall credit GPA, you'll need to use your credit reports (all three) to get to the bottom of the problem.

Your credit report card

Credit-reporting agencies keep tabs on various accounts -- past and present -- opened in your name, including credit cards, bank credit lines, mortgages, department store charge cards, and other bills (though usually not rent payments or utilities).

Your credit report also includes any collection actions taken against you and any public-record information that may exist, such as liens or bankruptcy proceedings, or how often you floss and if you returned that book of Poe poems you checked out in the third grade. (Okay, we're exaggerating a little bit on those last few.)