(Source: Mark Williams The Columbus Dispatch, Ohio (MCT) — Consumers know much more about credit scores than they did a year ago, but they still don’t know how costly a low score can be, according to a study released yesterday.
“The good news is that consumers know much more than in early 2011,” said Stephen Brobeck, executive director of the Consumer Federation of America, which conducted the survey in early April along with VantageScore Solutions.
“Despite our positive survey findings, there remains cause for concern,” Brobeck said.
Among those concerns: consumers who wrongly think factors such as age and marital status affect credit scores or the belief by many consumers that credit-repair companies are always or usually helpful in correcting credit-report errors or improving scores, he said.
The report follows a Dispatch investigation that detailed how easily mistakes can show up on credit reports and how difficult it is to remedy those issues. Mistakes on credit reports have cost people home loans and much more.The second annual study by the Consumer Federation, an association of nearly 300 consumer groups, and VantageScore Solutions found that consumers know much more about which companies use scores, who collects information that the scores are based on, that consumers have more than one credit score and the importance of checking credit reports.
Of particular surprise, the study said, was that consumers understand new and fairly complicated consumer protections regarding credit-score disclosures. Most consumers, for example, know that lenders who use generic credit scores are required to disclose those scores to borrowers after a borrower applies for a mortgage, is turned down for a loan or does not receive the best terms on a loan.
Brobeck said the improvements probably reflect the attention given to credit scores because of the new protections and efforts to educate consumers.
Still, the study found that most consumers lack important knowledge.
For example, 29 percent of consumers are aware that a borrower with a low credit score will pay at least $5,000 more on a $20,000, five-year auto loan than a borrower with a high credit score. Fewer than half of all consumers know that a credit score typically measures risk of not repaying loans rather than amount of debt or financial resources.
Barrett Burns is president and CEO of VantageScore, created by the Experian, TransUnion and Equifax credit-reporting agencies to come up with more consistent credit scores across all three agencies. He said that paying bills on time, keeping credit-card balances low and not taking unnecessary loans are important ways for consumers to boost credit scores.
Brad Huffman, financial planner with Future Finances in Columbus, said his clients are talking more about credit scores and their value.
“The conversation always comes up because it can be very costly” if a score is low, he said.
Huffman said many of his clients are older with little or no debt, yet he advises them to get their free annual credit report from the three credit-reporting agencies because credit scores are used in insurance, employment and even getting a cellphone.
“Those things are going far beyond ‘I need a loan, and what’s my score?’ ” he said.
A sampling of questions from a credit-score quiz:
1. Which of the following might use credit scores?
• Mortgage lender
• Credit-card issuer
• Home insurer
• Cellphone company
• Electricity utility
• All of the above.
Answer: All of the above.
2. On a $20,000, 60-month auto loan, about how much more would a borrower with a low credit score typically pay than a borrower with a high score?
• Under $1,000
• More than $5,000
Answer: More than $5,000
3. Which of the following helps a consumer raise a low score or maintain a high one?
• Make all loan payments on time.
• Use a credit card, keeping the balance under 25 percent of the credit limit.
• Avoid opening several new credit-card accounts at the same time.
• All of the above.
Answer: All of the above.
4. Which, if any, of the following factors related to student loans influences a credit score?
• Making payments on time or missing payments.
• Having student-loan accounts with no balances.
• Having student-loan accounts with balances
• All of these.
• None of these; student loans have no influence on credit scores.
Answer: All of these.
Sources: Consumer Federation of America and VantageScore Solutions
©2012 The Columbus Dispatch (Columbus, Ohio)
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