Let's say you've never missed a mortgage payment, you've never been late on your credit cards and are generally considered a no-risk, A-1 credit consumer.

You want to refinance your mortgage, but when the lender pulls your credit score you fall below the magic mark. So you decide to "fix" your credit rating by paying off some small balances on high-limit credit cards. Your broker suggests you cancel those cards and shift the balance, thousands of dollars, onto fewer cards in an effort to show meaningful consolidation.

You apply again but score even lower.

As word gets out that more and more lenders use credit scoring to swiftly qualify applicants, uninformed consumers who try to beat the system could end up with results that are the opposite of what they hoped for.

Offering the widely used "FICO" credit-scoring system, San Rafael-based Fair, Isaac and Co. scores range from a low in the 300s to a high above 800. The score represents a statistical evaluation of how likely you are to default on a loan. The higher the score, the lower the probability you'll default.

The lender requests the score as part of the credit report it obtains from one or more of the three national credit bureaus: Equifax, Experian and Trans Union. Fair, Isacc's stastical-modeling software crunches the numbers from your credit report data to come up with a score.

Some lenders rely more heavily on credit scoring than others. While it can speed up your loan application, it can also reject it. It is, after all, only a computer-generated number and the best lenders consider additional factors.

For instance, suddenly canceling many cards with small balances and then shifting all the debt to fewer cards effectively raises the ratio of your unpaid balances to the maximum credit lines available on fewer cards. To the software, it appears as if your financial situation has tightened.

Quick fixes won't get you the loan, but there are some strategies to get you the highest score possible.

• Periodically keep tabs on your credit report for inaccuracies, especially several weeks before you apply for a large loan, including a mortgage. Obtain your report from one or all of the three credit reporting agencies or obtain all three from Web sites like Oakland, CA-based QSpace Inc.'s iCreditReport. Fair Isaac's Web site can tell you how to handle derogatory remarks.

• Pay all your bills on time. Lateness, collections, bankruptcies weight most heavily against your credit score.

• Use credit wisely. That means use only the credit you need and can afford to pay.

• Don't max out your credit cards. Keep balances low.

• Don't apply for or open many credit accounts in a short period of time.

• Don't try to change a score overnight by suddenly closing or opening accounts. Scores are based on complex statistical models that could make such actions backfire.

• Avoid so-called "credit repair" services. Good credit is created over time.

Published: December 11, 1998

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