You might think that everyone understands credit scores. But you’d be wrong. According to an article I read recently, there is a great deal of confusion about credit scores.
Why is your credit score important?
Credit scores are incredibly important because they determine whether or not you can obtain credit and how much you will pay for it. The reason for this is because the first thing any potential lender will look at is your credit score. A bad credit score could stop you from getting a credit card or even renting an apartment. It will also increase how much you have to pay for services such as electricity, cable and your cell phone. It can even have an effect on your auto insurance premium.
40% don’t know how credit scores are used
This article referenced a study done recently by the Consumer Federation of America and VantageScore Solutions. It found that two-fifths of those surveyed were not aware that mortgage lenders and credit card companies use your credit score to decide whether or not to grant credit and how much the credit will cost. Two-fifths thought that their personal characteristics such as marital status and age were used in computing their credit scores, which is totally inaccurate.
What lenders are required to do
Did you know that lenders must inform you of the credit score that was used when they made their decision about lending to you? Between one-quarter and one-third of those surveyed did not know this. But the fact is if you try to get a mortgage, are refused a loan or didn’t get the best terms or price, the lender must tell you which credit score was used in making its decision. This is important because it will tell you which of the three credit bureaus you will need to contact to get and review your report.
Credit repair services
Finally, more than 33% thought that credit repair agencies would always or usually be able to help correct credit report errors and improve scores. This is also not true. You must review your credit reports on a regular basis. If you find errors, the burden is on you to see that they are corrected.
Raising your credit score
If you are interested in raising your credit score here’s what you need to do. First, as noted above, be sure to keep your credit card balances low and never apply for several credit cards at the same time. Maybe most important, be sure to pay your bills on time every month without exception.
How to get your credit score
You can get your credit score free but you will have to jump through some hoops. For example, if you sign up for a free trial of FICOs (www.myfico.com) Score Watch program you can get your score free. But – be alert – you need to make sure that you cancel Score Watch before the end of your free trial or you will automatically be charged for three months’ worth of the service. The website http://quizzle.com will give you your credit score free but it’s not your true FICPO score. It’s called your CE score. And the website http://CreditKarma.com provides what it calls your New Account Score but, again, this will not be your FICO score.
Get and understand your score
If you haven’t seen your credit score recently or ever, you need to get it immediately. This is a case where ignorance is definitely not bliss. What you don’t know about your credit score could definitely hurt you.