June 16th, 2015 8:48 AM by Jackie A. Graves
Michael D Brown / Shutterstock.com
it at your peril.
credit score can help people get lower rates for loans on cars and credit
cards, and can save them tens of thousands of dollars over a lifetime for those
who qualify for a mortgage, experts say, and yet people still make major
mistakes when it comes to understanding their credit scores.
credit scores can deny one access to credit or increase the costs of this
credit by thousands of dollars,” says Stephen Brobeck, executive director of
the Consumer Federation of America, a consumer advocacy group.
The primary way of maintaining a high credit score is paying off
bills on time. Only 53% of Generation Xers say they regularly pay off credit
card balances in full, less than millennials (57%) and boomers (66%), according
to a recent
report by Financial Finesse, a financial education company.
“Since Generation X struggles the most with debt and paying bills on time, they
may be particularly concerned about the impact of debt and late payments on
their credit score,” the report found.
there has been an improvement this year over last year in people’s knowledge of
how credit scores operate, here are five areas that — according to the report —
require room for improvement:
Low credit scores mean high loan repayments
Americans are not aware of how a low credit score can hit their pocketbook. The
survey cites the impact of an auto loan. Only 20% of Americans know that low
credit scores are likely to increase the finance charges on a $20,000, 60-month
car loan by more than $5,000, up from 16% a year ago, according to the results
of a survey by 1,000 people carried out for the CFA and VantageScore Solutions,
which operates a credit score model. And 41% incorrectly think extra charges
would be less than $3,000.
There is more than one credit score to track
One-third of people don’t realize that they have more than one
credit score. The country’s three main credit bureaus — Experian, Equifax, and
TransUnion — collect the information on which credit scores are frequently
based. This is particularly important as some lenders may be unwilling to
accept just one credit score, if they suspect that it doesn’t represent the
full picture. And scores can vary. Last year, Fair Isaac Corp. (FICO) announced
a change in its scoring,
putting less focus on medical-related debts.
700 is the magic number for most borrowers
Some 14% of respondents don’t realize that 700 is actually a
good credit score. A score between 661 to 780 is considered good credit and
between 781 and 850 is regarded as excellent credit, according to financial
website Credit.com. The site rates fair credit as between 601 and 660, poor
credit between 501 and 600 and bad credit as anything below 500. But different
lenders may have different criteria when it comes to loaning money, and may
approve borrowers with a credit score of below 700.
Transferring balances won’t help your score
34% of people know that making payments on time, keeping credit card balances
low or paid off, and not opening several card accounts at the same time helps
raise a low credit score or maintain a high one. It may not always be wise to
open another card with a lower temporary interest rate and transfer the balance
from one credit card to the new card. Brobeck advises paying down debt rather
than just moving it around, as well as not opening many new accounts at the
Check your score regularly to avoid disappointment
While most people realize that it’s important to check their
credit scores with one of the three main credit bureaus, 18% of people are
still not aware that they should do that, the survey found. It’s free to check your credit score and it also helps to build a credit score over time.
Rather than wait until you need a loan in an emergency or until you want to get
a mortgage, it’s important to check your score regularly so you can detect any
identity fraud on a credit card or any mistakes by the credit bureau.
By Quentin Fottrell – To view the original article click here
Read: Millennials distrust (or ignore) credit scores