Playing the FICO game

FICO scores, ranging from 300 and 850, are the keys to the credit kingdom. They're also annoyingly mysterious. Everyone has three -- one each from Experian, TransUnion, and Equifax -- and the exact algorithm used to compute the scores is a Fair Isaac Corp. secret. FICO scores are also pricey. Unlike credit reports, which you can pull annually for free, FICO scores remain a premium product. Fair Isaac will sell you access to all three for $40. (As I mentioned earlier, Providian gives card holders free access to one score.)

Fortunately, while the precise calculation is clandestine, you can still get a pretty decent amount of information on how scores are derived and how to tug yours upward. Fair Isaac explains the basics of what goes into your score: payment history (35%), amounts owed (30%), length of credit history (15%), number of newly opened accounts or inquiries (10%) -- only those you initiate count, and types of credit used (10%) -- mortgage, retail, installment loans, credit cards, etc.

While the algorithm is universal, FICO scores from each of the three credit agencies differ because each agency considers only the data in its own report. Checking your credit reports for errors is the first step toward making sure your scores are as high as they can be.

What's a good score? Every lender will have its own benchmarks, but 680 is a number I see mentioned frequently as a cutting point. Get into the 700s and you're fairly golden. Fall below 600 and you'll have trouble getting decent credit offerings at good rates.

Obviously, a big part of having a good score is making sure payments are made on time. That's the single most important factor in keeping your score aloft. Lenders start reporting delinquencies after 30 days -- paying a credit-card bill 15 days late won't show on your credit report, but paying it 45 days late will. Lenders report delinquencies in three categories: 30 days, 60 days, and 90+ days. Avoiding falling into the latter group makes a big different. Delinquencies are never good, but one or two late payments won't consign you to FICO hell. A pattern of 90-day-late payments can be hard to shake off, though, especially if it's recent. The further in the past delinquencies are, the less they affect your score.

OK: your credit reports are all correct and you're paying your bills on time. What can you do to bump your score up? (And by the way, scores are shockingly responsive. I've seen mine vary by dozens of points within weeks of something in my credit profile changing.)

-Ask your lenders to raise your credit-card maximums -- and then don't use the extra credit. The notion that it's bad to have "too much" available credit is a myth. Your income isn't in your credit report; lenders worry far more about what percentage of available credit you use than they do about how much available credit you have. Financial experts recommend keeping your credit utilization below 30%. This makes a big difference on your FICO score. Having $5,000 used of $6,000 in available credit will look much worse than having $15,000 used in $50,000 of available credit. When Amex doubled my credit limit, my FICO score jumped 20 points in a month.

If possible, avoid opening new accounts simply to increase your available credit. That can help, but since inquiries are a factor in the FICO score, it can also hurt. (A spate of new-credit inquiries makes the FICO gods worry you're about to go on a credit bender.) Raising the limits on your existing accounts, though, is all to the good.

-Take out an installment loan and use it to pay off your credit-card debt. The FICO algorithm focuses more on revolving accounts (like credit-cards and home-equity lines of credit) than on installment accounts, because how people treat their more flexible accounts better predicts what kind of credit risk they'll be for future accounts. When my friend used an installment loan to wipe out her credit cards, her score went up 80 points the next month.

-Spread purchases across multiple cards. The FICO algorithm not only considers your overall utilitization percentage, it looks at utilitization on each individual account. Maxing out the line on a $2,000 card will hurt you; spreading $2,000 across two or three accounts and keeping the utilitization percentage low on each will help you.

-Only cancel credit cards if you have a zillion -- and don't cancel your oldest card, if you can avoid it. Length of credit history is a factor in FICO scoring. The average American has 13 credit lines, including 9 credit cards, according to Fair Isaac. A wallet full of plastic cards with no balances on 'em is quite typical and not a red flag.

-If you have no credit history, it's useful to get one! When we first started renting apartments, landlords were flagging David (newly immigrated from Australia) as a credit risk because he had no available score. Even worse, I then messed up his score by making him an authorized user on one of my cards -- an IKEA retail card -- that I once paid 30 days late. That barely affected my credit profile, but since that card was the only item in his, my late payment tanked his score. We eventually fixed this by adding him as a user on my Amex card, which has a high credit limit and no history at all of late payments. A year later, his score had climbed into the high 700s.

-And finally, needless to say, those "fast credit repair" services that splash ads all over the Web are scammy. There's legally nothing any third party can do to change your score, short of handling for you the hassle of seeking out incorrect items in your credit reports. All the steps that will actually affect your score, like those mentioned above, are steps you can take without paying anyone for "assistance."