It Pays to Know Your Score
Consumer understanding of credit scores has improved over the past year, according to an annual survey commissioned by the Consumer Federation of America (CFA) and Washington Mutual Bank (WaMu). But that's not saying much.
Credit scores are important. Very important. That's how lenders decide if you're too risky to lend money to. According to this survey, the results of which were released Thursday, fewer than one-third of Americans know that credit scores indicate risk of not repaying a loan.
"Lack of consumer knowledge about credit scores not only increases the costs of their credit and insurance, but also reduces the availability of these and other services," said Stephen Brobeck, executive director of the CFA.
Washington Mutual estimates that credit cardholders could reduce finance charges by $105 annually if they raised their score by 30 points. If all consumers raised their scores by 30 points, total annual consumer savings would be $28 billion, according to the financial institution's estimates.
How do you increase your credit score? CFA and WaMu offered some tips. Pay your bills on time. Don't max out your cards. Don't open too many new accounts too quickly. Regularly check your credit reports to make sure they are free of errors. Oh, and one more thing you can try: Pay off your debt rather than moving it around from card to card.
The two institutions also provided a few facts that all consumers should know about credit scores. Here they are:
--Scores reflect your past credit history, not your personal characteristics. That means your age, gender or income don't matter.
--Low scores could not only cost you thousands of dollars a year in additional finance charges, but can also deny you access to credit, insurance, telephone service, a rental unit, or even a job. Yes, some employers check credit scores.
--If your score is below 600, you will probably get a higher "subprime" loan rates. If your score is above 700, you will likely get relatively low "prime" rates. And if you've got a score above 760, you'll probably get the lowest rates out there.
So make sure you figure out what your score is. You could make your life much easier if you do.
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