Credit: The Real Score

To measure intellect, Americans use IQ and SAT scores. For health, we use cholesterol tests and the body-mass index. And when it comes to finances, we're judged by our credit scores. For years consumers have been able to request copies of their credit reports, which list their accounts, balances and payment histories. But the actual scores--a single number crunched by the firm Fair, Isaac & Co.--were available only to lenders. Now consumers can access scores themselves at myfico.com. For $12.95, the site provides your score, some simple analysis--and, for many people, a sudden sense of disappointment.

Believe me, I know. If there were a Mensa club for folks with high credit scores, I figured I'd have a shot at joining. I pay my bills on time. I pull my credit report each year to check for errors (check yours at equifax.com, experian.com and www.transunion.com). My wife and I have a mortgage and student loans, but otherwise we avoid debt, usually paying our credit card in full each month. So when I clicked on myfico.com, I expected a rave review. Instead, I got a mixed grade. My raw score--763 out of a possible 850--was good, but that only placed me in the 66th percentile nationally, meaning one out of three Americans ranked higher than me. Instead of feeling like a blue-chip stock, suddenly I was more like a walking junk bond.

I'm not the only one. When the company launched the Web site in March, managers expected most complaints to come from low scorers. Instead, many angry callers scored well but were still unhappy with their rankings. "The calls we got from higher-scoring people were along the lines of, 'I'm perfect, I have an SAT score of 1400, and I'm outraged my credit score is only 812 and not 850'," says Tom Quinn, the executive who helped devise the scoring system.

To help me come to terms with my shortcomings, I sent my file to Quinn and one of his colleagues. Their analysis was illuminating. The biggest surprise: how some savvy financial moves have hurt my credit score. For instance, a few years ago we consolidated our student loans to get lower interest rates and have a single monthly payment. That's smart. So is taking retailers up on their offer of a 10 percent discount on a big-ticket purchase just for opening a credit card (we immediately pay the full bill and cancel the card). The bad news: all those old, closed and paid-in-full student loan and retail charge accounts are still on my report, which lists 22 accounts (the average American has just 11). Having too many accounts--even old ones--hurts my score. Another example: we make most retail purchases on a MasterCard, then pay the full bill each month. It's convenient, and we use the bank's money interest-free for 30 days. But since the credit scorers see our card balance at a point in time, they can't tell that we're paying it off every month; to them it looks like we're carrying balances.

The company understands consumers might see these examples as "a disconnect, a divergence from what people regard as common sense," says spokesman Craig Watts. But "the score is based entirely on the statistical evaluation of millions of consumer records over time," he says. Their computers say people who exhibit these traits--too many accounts, say--are more likely to turn into deadbeats.

The experts tried to cheer me up. "You have a very, very good score," assures Quinn, who scores only six points higher than me despite the fact that he helped design the system. (His advantage: at 37, he's six years older than me, so his accounts are older). In fact, age may explain why one third of Americans score higher than I do, Quinn says. Older people have older accounts and often carry less debt, so scores typically increase as you age. All else being equal, someone who got his first Sears charge card in 1960 and paid off his mortgage a decade ago is bound to outscore someone in his 30s, he says. The lessons from this exercise: if your score is high enough to get you decent terms on a loan, a less-than-perfect number shouldn't cause you to lose sleep. And if you're going to be shopping for a loan, it may be worth checking your score six months ahead of time, since it could affect the interest rate you pay. If yours needs a bump up, paying down a credit-card balance could help (the site offers a simulator to see how much of a boost you might expect). After hearing their explanations, I feel a little bit better. Now if I can only get someone to rationalize my cholesterol score.

GAMING THE CREDIT SYSTEM

Credit scorers use computer models to predict the odds that consumers won't pay their bills. The average score: 720. Positive Factors * Good Payment History Making sure to pay those bills on time builds a good track record. * Old Accounts In calculating credit, longevity counts. * Low Balances It isn't just total dollars that matter, but the percentage of credit limits. Negative Factors * Missed Payments It pays to get those accounts current. * Many New Accounts Opening too many too quickly may signal a spending binge is on the way. * High Balances Surfing from card to card won't help. * Closing Unused Accounts It's no quick fix and may actually hurt scores in the short run.

BOOSTING YOUR SCORE

Ok, don't stiff your creditors. A few other suggestions:

* Paying off revolving balances (such as credit cards) will help more than prepaying installment debt (such as car loans). * Transferring credit-card balances to new accounts can reduce interest charges, but it can hurt your credit score. * Relax. If you manage your debts, often your score will rise as you grow older.