Learning The Score

Scoring critics are troubled even by the little information they do have. Finance-company loans can lower a score, but they may be the only source of loans for low- and moderate-income borrowers. Other negatives, like lots of credit inquiries and no recent revolving balances, seem to punish those who chase teaser rates or pay off balances without paying interest, and may be measuring profitability more than creditworthiness. Fair, Isaac has fixed its formula to eliminate some problems. It consolidates credit inquiries that come close together to avoid penalizing comparison shoppers, and recently agreed not to treat prior use of credit counseling as a negative.

The firm will keep the game, but borrowers will learn to play. Consumers who ask enough car dealers or mortgage lenders can probably get their scores today, says Fisher. The only way to "fix" scores is the hard way, by building a solid history of paying bills on time, all the time, and scrubbing mistakes from your credit report.

But some short-term strategies may work, too. Because credit scores are constantly updated, it's never too late to do a little cosmetic work. Racing to pay down some debts before applying for a mortgage can help. Consumers juggling more than 10 credit cards may decide to cancel a few, but don't cancel all of them. It actually helps to keep a couple of inactive cards, explains mortgage broker Ginny Ferguson. A customer with five cards, each with a $5,000 limit, who has a balance of $4,000 on one of them will have a better credit score than the customer with one $4,000 balance on a single $5,000 card. The first one is using 16 percent of available credit; the second one is using 80 percent.

There's also some evidence that keeping a small balance on cards is better than no balance at all, and it probably pays to look average. Fair, Isaac finds seven cards and four other loans in the average portfolio.

There's no going back to the days of eye contact and handshakes, recalled fondly by wistful mortgage brokers like Tucson's James Kenny. "We used to call underwriting an art, instead of a science," he says. "Now we take living, breathing people and break them down into a number." The credit industry already has yours. It's time for you to get it, too.

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