Suze Orman Money Matters

Subprime mortgages are the eye of the current credit-crunch storm, but their impact is being felt throughout the financial world.

While it's obviously a lot harder to get a mortgage right now, every nook and cranny of our financial lives -- from car loans to credit cards -- are also being hit. No one is immune to the credit crunch, and unless you make sure your finances are in great shape you're going to end up paying higher fees and interest rates.

The Credit Score Switcheroo

What everyone needs to understand is that the test lenders use to grade you just got a whole lot harder. I'm talking about your credit scores.

The result of the ongoing credit crisis is that lenders have ratcheted up the credit score ranges you need to land in order to qualify for the best rates and deals. For example, before the subprime mess, a FICO credit score in the range of 620 was considered on the low-end of loanability. But in the wake of the meltdown, the low end has been raised to 680 or so by some lenders. In other words, you need to have a higher score just to have a shot at getting a deal on a mortgage or car loan.

Credit card issuers are also tightening the screws a bit, too. Even if you've been making payments on time, you could be hit with a higher interest rate on unpaid balances simply because the card issuer has raised the FICO score needed to get a lower interest rate.

That is, you may not have changed a thing -- your payments have been on time and your credit-to-debt ratio hasn't worsened -- but all of a sudden your interest rate jumps from 10 percent to 18 percent or more. All because the card issuer raised the credit score needed to qualify for the lowest interest rates.

Give Yourself Some (Good) Credit

I've been stressing the importance of the FICO credit score for a long time, and it's never been more urgent than right now. What's going on in the financial world makes it crucial for you to do everything you can to ensure that your credit score is in tip-top shape.

Sound obvious? Heard it all before? Well, then why is it that in a recent survey by the Consumer Federation of America, almost 40 percent of Americans didn't know their credit score?

Believe me, what they don't know can cost them big. Washington Mutual, which sponsored the survey, estimates that Americans could save $20 billion a year in credit card charges if they managed to raise their FICO score by 30 points. (That estimate was done before the big credit crunch, so the penalty for a low FICO score is even more costly today.)

Here are some ways you can protect yourself in the midst of the credit crunch:

• Get your FICO credit score

First, full disclosure: I work with Fair Isaac Corporation, the company that computes the FICO credit score. But I don't receive a penny when someone purchases their FICO credit score, so I have no financial stake in this advice whatsoever.

Why not tell you to get your credit score from somewhere else, then? Because the vast majority of lenders and credit card issuers use FICO to assess the financial responsibility of potential customers. You need to know your FICO score because that's what businesses are using to check up on you.

You actually have three credit scores, one from each of the three major credit bureaus: Equifax, Experian, and TransUnion. For your purposes, it's fine to save some money and get just one score. The only time you need to check all three scores is if you're mortgage shopping; most lenders will use all the scores, so you want to make sure all three are spotless.

• Don't settle for a score under 760

In the world of credit scores, 760 is the new 720. If you haven't been paying attention for the past year or so, the tightening in the credit markets has pushed the top tier of FICO scores from the 720-to-850 range to a loftier range of 760 to 850.

A score of 740 would have qualified you for top offers in the past, but now it pushes you into the second tier. To give yourself a shot at the best rates and loans, you need to make sure you clear the new bar of 760 or more.

• Scour your credit report

The raw data that Fair Isaac uses to compute your credit score comes from the information in your credit reports from Equifax, Experian, and TransUnion. You need to keep an eye on those reports to make sure there are no mistakes.

If you're surprised that your FICO score is lower than you anticipated, there's a good chance that there's some sort of mistake in your credit report -- or worse, that an identity thief is masquerading as you and has taken out loans and credit cards in your name. Keeping tabs on the information in your personal credit reports is the first step in protecting your credit score. You can obtain a free credit report here.

• Aim for a perfect on-time payment record

Given that timeliness accounts for 35 percent of your FICO score, paying all your bills on time -- not just the credit card bills -- is a surefire way to boost your score.

And remember, mailing a bill on the due date doesn't count. Send it in four days early to make sure it arrives by the due date. Better yet, use the online bill payment services offered by most banks.

• Reduce your debt-to-credit ratio

Add up all the outstanding balances on your credit cards and divide that sum by your total available credit limit on the cards. That number is what is known as your debt-to-credit ratio, and it plays a big role in determining your FICO score.

For example, if you have $3,000 in unpaid balances on three cards and a total credit line on the cards of $8,000, your debt-to-credit ratio is 37.5 percent. Get your unpaid balances down to $2,000 and the ratio drops to 25 percent -- which will help raise your FICO score.