Your credit score, that is. For many years, the best way to monitor the health of your good credit was to check a copy of your credit report and cross your fingers that your on-time payment history and other good habits would make you attractive to lenders.

But recently, credit scores – the standard gauge of your creditworthiness for lenders and traditionally the most mysterious component of your financial profile – became available to consumers for the first time.

The idea of a credit score was developed about 20 years ago by Fair, Isasc and Company (FICO), a san Rafael, California data provider. Today the FICO score is used in three out of four mortgage and auto loan decision and has become to borrowing what the SATs are to college applications.

What is this score that mortgage lenders, banks, credit card companies auto dealers, and retial stores have had access to all this time? It’s a number ranging from 300 to 850 that is calculated from data that your cresitors supply to the credit bureaus, whish are then recorded in your credit report.

Your credit score is determined by comparing your borrowing record with every other person in America who has a credit history. Credit experts who design credit scoring forecast models review a set of consumers who opened a credit line or started a loan at the same time and determine who paid back the loan – and how quickly – and who did not. Both sets – payers and nonpayers – are reviewed to find the common traits they had when they applied for the loan.

The idea behind the scoring model is that past performance is indicative of future behavior. In other words, the higher your score, the better the statistical odds that you’ll repay a loan.

So, what number is a good credit score?

Lenders generally consider a score in the 700s to be an easy score to underwrite. A score that’s in the 600s is more problematic. Why? According to FICO’s forecase model, the delinquency rate for people with scores of 750 is about 2 percent; scorers with 630 have a delinquency rate of 31 percent.

How do you find out your credit score?

I recommend the Equifax Score Power services at www.GuardMyCredit.com.

By the way, it is a common misconception, but checking your own credit report does NOT affect your credit score.

Mutual funds offer several key advantages over individual stocks, which can make the management fee very worthwhile.

1)
A professional skilled in choosing stocks does all of your work for you.

Manages of stock mutual funds spend their entire day determining which stocks to by and sell. They have instant access to information about every stock around the world at the push of a few computer keys. They work in companies where teams of research analysts pore over corporate quarterly and annual reports and managers and analysts visit company executives and factories to evaluate the firms’ prospects first hand. You have almost no opportunity to become as knowledgeable as these fund managers without quitting your job and taking up investing full-time.

2)
A mutual fund gives you instant diversification.

If you have only $1,000 to $5,000 to invest, the money will not buy many shares of a single stock, and it will certainly not buy many different stocks. By putting your money in only two or three stocks, you are exposed to the possibility that one of them will plummet in price, wiping out much of your investment capita.

Instead, when you put your $1,000 or $5,000 in a mutual fund, your money buys into a portfolio that may comprise 50 stocks, or maybe 500 different issues. If one or two stocks in the portfolio get hit hard, your losses will be much more limited because many of the other stocks will probably be going up at the same time.

3)
A fund exists for every financial goal and risk tolerance level.

Armed with our goals and risk level, you can find a fund that fits your situation. In broad terms, there are funds designed for various degrees of growth and for varying levels of income, as well as funds that combine both growth and income objectives.

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This is an excerpt from my book, Everyone’s Money Book.