What you don't know about credit scores can cost you.
Do you know how credit scores are calculated? Do you know how to maintain or raise your credit score? Do you know how credit scores are used in decisions about credit availability? If you answered “no,” you are not alone.
A consumer survey released by the Consumer Federation of America found that about one-quarter and two-fifths of a representative sample of 1,022 adult Americans incorrectly answered wide-ranging questions about credit scores.
For the record: Age and marital status are not used in calculating credit scores; Keeping credit card balances low and not applying for several cards simultaneously can help maintain or raise your credit score; and credit card issuers and mortgage lenders use credit scores in decisions about credit availability.
“Credit scores have become so influential in the lives of mot consumers that tens of millions are severely disadvantaged by their lack of knowledge about these scores,” said Stephen Brobeck, CFA’s Executive Director, in a statement. “Low credit scores will often cost car buyers more than $5,000 in additional finance charges and cost home purchasers tens of thousands of dollars in additional mortgage loan costs. Low scores are likely to limit consumer access to, and increase the cost of, services such as cell phone service, electric service, and rental housing.”
Those who don’t educate themselves about credit cores, he continued, lack incentive to adopt behaviors that could improve it, such as keeping credit card balances low and paying bills on time.
The survey found that between one-quarter and one-third of respondents did not know when lenders are required to inform borrowers of the credit score used in their lending decision (after applying for a mortgage, when they are turned down for a loan, and when they don’t receive the best price or other terms). Between one-third and two-fifths did not know the credit scores of co-signers of a student loan are affected by that loan, improving if payments are made on time and declining with one late payment.
Women know more about credit scores than do men, as do Millennials know as much about credit scores as the rest of the adult population, the survey found.
The CFA offers these further tips to raise your credit score:
· Not maxing out, or coming close to maxing out your credit cards
· Paying down debt rather than moving it around
· Regularly checking credit reports to make sure they are error free?
How much do you know about credit scores? Take the CFA interactive quiz at http://www.creditscorequiz.org/ and www.CreditScoreQuiz.org/Espanol
Donald Liebenson writes news and features for Millionaire Corner. He has been published in the Chicago Tribune, The Chicago Sun-Times, The Los Angeles Times, Fiscal Times, Entertainment Weekly, Huffington Post, and other outlets. He has also served as a marketing writer for Chicago-based Questar Entertainment and distributor Baker & Taylor.
A graduate of the University of Southern California, he is married with a college-age son. He also writes extensively about entertainment.