What You Don’t Know About Credit Scores Can Cost You
Each year, the Consumer Federation of America, or CFA, releases a report on credit scores. Specifically, this report is an analysis of credit score knowledge and what consumers do and don’t know about the impact of their score, warning signs that could lead to poor scores and more.
The good news is that the CFA’s 6th-annual report on the matter, released earlier this week, indicates that Americans have learned from their past mistakes, notably older Americans who got into trouble during the “great recession”. But the bad news is that the report indicates that consumers still have a long way to go in terms of truly understanding the impact credit scores can have and how wide-ranging this impact is.
Check the Report: What Consumers Don’t Know
The biggest misconception that consumers have when it comes to credit scores is just how significant a low score can be when it comes to purchasing. If a credit score scale goes up to 850, a low scores is usually considered 620 or less. Generally speaking, the lower the credit score, the more difficult an individual will have getting financing for any type of purchase – that is, if they’re even approved for financing at all. Typically, poor scores can add anywhere from five to 20 percent to to the total cost of the loan. The CFA report showed that about only 20 percent of all consumers truly know just how much low credit scores can hurt.
The report found that another big unknown has to do with just who can check your credit score. While most consumers know that credit checks are essential for things like mortgages and auto loans, most don’t know that landlords, would-be employers, insurance agents, cell phone carriers and utility companies can also check your credit score in an effort to determine your “risk” as a consumer.
Other unknowns include:
- About half of all those surveyed didn’t know that lenders are required to inform consumers of their credit score during the application process, whether they’ve been approved or not.
- About two out of every five people surveyed believed that age and marital status factor into a credit score. That’s obviously not the case.
The good news about the most recent CFA report is that about 80 percent of those surveyed knew the basics about credit scores and credit reporting. Data showed that many are well aware of the negatives that can greatly impact a credit score (i.e. foreclosures, high credit card balances, bankruptcy, missed payments, etc.). But in the case of credit scores, what you don’t know can greatly hurt you. So while the CFA report does have some positives, there’s still a long way to go in order for consumers to truly understand many of the important aspects of credit.