A credit score is either a blessing or a curse cast down upon you from the digital cloud.
A score of 740 qualifies you for the best interest rate on a conventional mortgage. A score under 640 means ugly interest, and a number under 620 makes it very hard to get a mortgage at all.
This measure of your worthiness generated by a soulless computer also affects the deals available for car loans, credit cards and auto insurance.
But there are ways to tweak that score higher.
Such tweaking is part of George DeMare's business. He is managing partner of Midwest Mortgage Capital, a mortgage lender in west St. Louis County. "I deal with people with 640 scores all day long," he said, and he looks for ways to push them up.
Lately, he's taken to lecturing on the mysteries of scoring. His main advice is to pay your bills on time, and borrow sparingly. That's the best way to fix credit over time. But if time is short, there are other maneuvers you can make.
First, a word about scoring. Most of the blessing and cursing comes from king of credit scoring Fair Isaac Corp. The company, better known as FICO, provides the software used by many major lenders and credit reporting companies. FICO uses five variables for scoring credit; its main rival, called Vantage, uses six.
With a FICO score, on-time payment history is the biggest factor, accounting for 35 percent. The amount owed influences 30 percent of your score; the length of your credit history is responsible for 15 percent; the type of credit used and recently added credit each affects 10 percent. (On-time payment history also is the biggest factor with Vantage, accounting for 32 percent.)
Scoring formulas are tailored for different lenders. If you buy your score from a credit company, know that it may not be the score your lender sees.
The scores are derived from information on your credit report. The report tells how much you owe, how close you are to maxing out your credit lines, and whether you pay bills on time. The report also scans public records for bankruptcies and court judgments against you.
So the first step in boosting a score is to make sure the credit report is accurate. It's often not. In a recent Federal Trade Commission study, a quarter of consumers found errors on their reports that could affect their scores.
A clerk's finger slips on a key, and somebody else's debt is reported as yours. The system confuses similar names. It has trouble telling John Doe from John Doe Jr. and John Doe III. "We see a lot of Junior's accounts reported on the Third's credit," DeMare said.
Court judgments often stay on reports after they've been paid off, DeMare said. Collection agencies are not diligent about reporting satisfied debts.
You're entitled to a free report once a year from each of the three major credit bureaus Experian, TransUnion and Equifax. You can get it at http://www.annualcreditreport.com or by calling 877-322-8228. If you're denied credit because of your report, you're entitled to another free one.
If you find a mistake, contact the reporting agency. The Federal Trade Commission found that 4 out of 5 consumers who complained won a change in their report.
The agency is supposed to check with the creditor to see if the information you challenged is correct. If the creditor doesn't respond within 30 to 45 days, it comes off your report. And therein lies potential for mischief. Some consumers challenge legitimate credit blotches, hoping that creditors will be slowpokes or goof. DeMare considers that "immoral."
The credit reporting agencies don't know how much money you make or how big your savings are. They don't know the rent you're paying. So the scoring companies can't judge your ability to carry your current debt.
They do look at the amount you owe and at how much of your available credit you are using. The smaller the debt, the better. For instance, if you have a $10,000 maximum limit on your credit cards, and you owe $1,000, that's OK. A $9,900 debt would be awful. FICO likes to see debt at 30 percent or less of available credit, said spokesman Anthony Sprauve.
If you can't pay down the debt, call the credit card company and ask for a higher credit limit, DeMare said. A bigger limit makes your debt percentage smaller.
Shuffling debt around can also help. Suppose you have two credit cards with $10,000 limits, with $9,000 owed on one and nothing on the other. Moving half the debt to the unused card will help, he said, and the FICO spokesman agrees. The formula judges you on how close you are to maxing out a card.
Not all credit cards report your maximum credit limit to the credit agencies, and that's a problem. It makes your debt percentage look bigger than it is.
That happened to someone in DeMare's office. "Sure enough, Citibank wasn't reporting his credit limit," DeMare said. "He got it fixed, and his score jumped 40 points."
Debts sent to debt collectors are poison for a credit score. If they're new debts, try to pay them off. But the older a "collection item" gets, the less it counts, and they disappear after seven years. So, if the debt is very old, you're better off not paying it. A payment turns it fresh again in the scoring system, DeMare said.
One client suffered because he was an "authorized user" on another person's credit card, something common in families, and that person was behind in payments. The client called the credit card company and had his name removed.
If you're divorced, better divorce your debts, too. If you're on your ex's credit cards, any payment problems will show up on your credit report. "We see that happen a lot," DeMare said. "I recommend that you close the accounts."
Some people are dinged for being too responsible with their money. They hardly ever use credit, preferring cash. "You'll have a harder time getting credit than the guy who has debt," DeMare said.
Actually, debt isn't necessary. If you simply pay off a credit card in full every month, you'll establish good credit.
A short credit history also hurts. As a result, some young and frugal people have trouble getting mortgages, DeMare said. That's why he recommends that college-age young people get credit cards. Young people under 21 need a co-signer, generally a parent, to get a card unless they have a sufficient income.
Can't trust your irresponsible kid with plastic? DeMare recommends that parents start them out with a "secured" credit card. Parents deposit money with the credit card company often a few hundred dollars and the kid can't go over the limit.
That establishes credit without danger of debt. But FICO adds a caveat: Some issuers don't report secured credit cards results to the credit bureaus, which defeats the purpose.
If you're shopping for a loan, do it quickly. Many credit checks from lenders raise worry that you're about to go on a borrowing binge. But if the inquiries arrive quickly, the scorers think you're shopping for a single loan.
If you have a short history, don't open a bunch of new credit accounts in a hurry. That behavior hurts the scores of young people more than people with established credit, according to FICO.
Check your score
Getting a credit report
You're entitled to a free credit report once a year. You can get it at http://www.annualcreditreport.com or by calling 877-322-8228. If you're denied credit because of your report, you're entitled to another free one.