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The financial crisis has prompted lenders to tighten their standards when they issue new loans and credit cards. They're paying close attention to an applicant's credit score, or FICO as it's known. These are the numbers that often determine whether you'll get credit, and if you do, what interest rate you'll be charged. NPR's Wendy Kaufman offers a bit of FICO history and some tips for improving your score.

WENDY KAUFMAN: Half a century ago, an engineer Bill Fair, and a mathematician Earl Isaac, pioneered the idea of an automated credit scoring system. Later they would broaden their mathematical formulas to cover all kinds of consumer credit - and FICO, an acronym for the Fair Isaac Corporation, was born. Mark Greene is the CEO of Fair Isaac.

Mr. MARK GREENE (CEO, Fair Isaac Corporation): Many organizations seek to understand risk and make smart decisions. And predictive analytics, as we call this field of math, can actually help you do that. You can have a good sense of who's going to be tomorrow's good credit risk, based on looking at how they've behaved in the past.

KAUFMAN: Just about every time you apply for a mortgage, a car loan, even a department store credit card, the lender obtains your FICO score. The data that goes into that score, your credit history, is compiled and constantly updated by credit-reporting agencies. Here's how it works. A lender, say a retailer, poses an electronic query to a credit reporting firm. And then...

Mr. GREENE: They run that information through an algorithm that we provide. So we provide the math, the bureau provides the data, and very quickly a number is computed and returned back to the retailer at the point of sale that says, here's your number.

KAUFMAN: Scores range between 300 and 850. In today's tight credit market, it takes a score of 760 or higher to be considered a very good credit risk. On the low end of the scale, many lenders are shying away from consumers whose scores are below 680. That standard is tougher than in the past. And even if low-scoring consumers get credit, it will cost them more - often more than twice the interest rate paid by someone with a solid score. So, what goes into the score? Greene says there are three main elements, beginning with your payment history. Do you pay your bills on time?

Mr. GREENE: The second factor that feeds into the FICO score is the amount of money that you owe. If you have large outstanding balances, that's not a good thing. You want to keep your credit card balances low. And the third one is the length of your credit history. How long have you had a trusted relationship with your different creditors?

KAUFMAN: Surprisingly, the FICO formula does not consider income or employment history. But it does look at your total outstanding debt at a given moment in time. So, the fact that you pay all your credit obligations in full every month won't necessarily give you a big boost. What's more, the formula penalizes you if you use your credit cards to the max and spend up to the limit, even if you pay it off.

Mr. STEVE KATZ (Director of Consumer Education, TransUnion): Ideally, a consumer does not want to be using more than 35 percent of their available credit on any given revolving line of credit. So, for every credit card, you wouldn't want to be more than 35 percent of your limit.

KAUFMAN: That's Steve Katz, director of consumer education at TransUnion, one of the three major credit-reporting agencies. He has other advice as well.

Mr. KATZ: If you miss a payment by 30 days or greater, that can really cause a shift in a credit score that a consumer wouldn't want to see. So, we always tell people to make at least the minimum payment due in a given month.

KAUFMAN: Other factors that can adversely affect your score - foreclosures, collection proceedings, even opening a slew of new credit cards at one time. That could signal that you're about to take on too much debt. In a tough economic climate, you might expect everyone's score to fall. But Fair Isaac's Mark Greene says historically, that's not what's happened.

Mr. GREENE: The scores actually spread out. There are more people at the low end of the spectrum, as you would guess. But there's also more people whose scores go up. And that might be because people who already had good credit scores, who are already sensible in their finances, become even more so.

KAUFMAN: With credit as tight as it is right now, experts say it's more important than ever for consumers to know what's in their credit report and what their FICO score is. A score that is incorrect, and thus too low, could prove very costly. Wendy Kaufman, NPR News.

INSKEEP: And you can learn more about how FICO scores work by visiting our Web site, npr.org.

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