Inside story on the credit score and how it can rule your life

your credit score and why it rules your lifeWhat's your score? No, this isn't a pick-up line. Every time you apply for a loan, an apartment or a credit card, companies contact credit bureaus like Experian and TransUnion to obtain your score -- your credit score that is. That number and your credit history can often times make or break a deal.

But what is this all-powerful number? Ann-Marie Murphy -- co-creator of Quizzle, a personal finance website that helps people manage their home, money and credit and is best known for giving users free credit reports and scores – explains the math and how it can affect your life.

What should people know about credit? I was surprised, for example, to hear employers are using your credit information to determine if you're a good hire.

"People need to learn that credit is not necessarily intuitive. The infamous example is closing a credit card account. You think it's the financially responsible thing to do. But it will ding your credit score because credit utilization is one-third of your score. That is how much credit you use compared to how much credit is available to you. It makes it look like you are using more of your available credit, which the credit score gods don't like. People have to understand that it is not intuitive.

"A lot of people wait to care about their credit until they need to use it, for getting a home loan, auto loan, whatever it is. And usually by then, it's too late. It takes a long time, depending on what your credit profile is, to improve it. If you want a house now and you need to improve your score, it could take six months to a year. People need to know it is something that needs to be managed all year round."

How do companies derive the credit score?

"They may vary a little bit in their algorithm, but generally it is payment history. That is the biggest factor. That's just paying your bill on time every month, or at least the minimum payment. Another one is the mix of credit. Having a mix of credit shows you can be responsible overall. They also look at credit inquiries. Anytime someone pulls your credit report to issue you credit or a loan, that can indicate to the credit scoring people that you might be about to overextend yourself in a credit standpoint. Lastly, there is length of credit history and amounts owed. That is where the credit utilization comes in.

"What's confusing is someone can possess more than one credit score. It's because the credit bureaus and companies like FICO and CE Analytics, which we use, have different mathematical formulas or algorithms to determine your credit score. Each company uses a unique scale and may weigh certain factors more heavily than others. Hence, the different credit scores."

Explain why when my husband and I were getting a mortgage, I had the higher score. He had one or two cards, no student loans and paid his credit card balance on time. I had more cards, had student loans that I paid off, and carried a balance a couple of times.

"This comes back to why credit is not necessarily intuitive. If your husband is financially more responsible, he should have the higher score. Based on that little bit of information, your credit score is better if you have had credit and used it and paid off your debt responsibly. So if you're someone who has one or two cards, never had a student loan, didn't have other types of credit, you may be a financially responsible person but you are not illustrating to this mathematical formula that you can take on credit, use it responsibly and then pay it off."

People come to your site for the free credit report. Why are credit reports so susceptible to scams and spams? Frankly, people are leery of free credit report offers.

"I think it's because the majority of companies that offer free credit reports – there are fewer that offer free credit scores – are tied to purchasing a product or service or a trial of a product or service. So people go in because it's free, trust that it's free, because it should be, since it says it's free and all of a sudden they are getting billed for something on their credit card for something they did not necessarily want. It's left a bad taste in their mouth.

"Luckily, the FTC cracked down on this. If anyone is advertising a free credit report that is tied to a product or service or a trial of a product of service has to have this giant disclosure on the top of the page that says you can get a free credit report, no strings attached, at The problem is nobody wants that huge disclosure. It's like an ad for a competitor. So now they are making a big deal about free credit scores. So that is going to leave a bad taste in people's mouth as well.

"We tell our users all the time, apply the credit card. If a company says they are going to give you something free, whether it's a free credit report or anything else, then require your credit card number, it's probably not free. Some companies will say they need it for identity verification. They don't. There are other ways to verify."

Why offer the free credit score in addition to the free credit report?

"Because people don't understand credit reports. Even I, who feel pretty educated on credit, don't know if I can look at my credit report and have an idea of where my credit score is. A credit score is like a grade in school, people get it, so long as they look at the scale because it's important to make sure you know what scale they are working off because there are all different ones."

What's your advice on improving a credit score?

"A lot of it comes down to your individual situation and your ability to take on credit, pay off credit. We have a great credit expert partner that we use for our credit improvement tool called CE Analytics. You can go from a bankruptcy to high 700s, 800s but it's mostly a time and patience thing.

"With our credit improvement tool, we have two options. For $25, it's one time quick look, so it bumps up against your credit report, takes information you've given us like your income, and tells you what you can do to improve your score. It gives you a one-time list of things you can do to improve your credit. The $75 option is a four-month program where each month, you will get a new credit report and score with a list of things to do to improve your score because things change all the time. It holds your hand more."

What other tools do you have to improve our credit?

"We've just rolled out an identity protection tool. It scans the Internet constantly for personal information about people, whether it's name, address, Social Security number, credit card, etc. If it finds it in certain places, it'll alert you of that and let you know how to delete it. If you have too much personal information out there, you're too susceptible to having your identity stolen. In addition to that, there is credit monitoring and a $1 million restoration coverage in case your identity is stolen. It'll cover lost wages, that kind of thing. It's a complete tool. It's $8 a month. If you wanted to do the credit monitoring by itself, just Experian, that's $3 a month.

"We'll also be offering a lease to own program, loan modification, medical collection and debt settlement next month We will be able to identify what you may qualify for to better your situation. By the end of the year, we may take a look at our budget section and make it more robust. People like it because it's simple. What we will probably do is offer a high level thing if somebody just wants something simple. But if you want to dig down, we will have that option as well."
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