Misperceptions About Credit Scores Prevalent, Costly/ May 24th, 2013
WASHINGTON (5/28/13)--The large number of Americans who know little about credit scores also have little incentive to improve or maintain their scores because they don't understand how having a low score can affect them. Lower scores can mean those individuals will pay higher finance costs and have limited access to--and increased costs of--services such as cell phones, electricity and rental housing (Consumer Federation of America May 13).
A recent survey by Consumer Federation of America (CFA), Washington, D.C., and VantageScore Solutions, Stamford, Conn., identified several misperceptions about credit scores. Between one-quarter and two-fifths of 1,022 American adults answered several questions incorrectly:
- Forty-two percent did not know that mortgage lenders use credit scores in decisions about pricing.
- Thirty-six percent incorrectly believed that credit repair agencies help them correct credit report errors and improve scores.
- Thirty-one percent didn't know that credit scores of co-signers of a student loan decline with just one late payment.
- Twenty-eight percent didn't know that applying for several credit cards at the same time can lower their credit score.
- Twenty-six didn't know that keeping low credit card balances can raise or maintain their scores.
Many job seekers are surprised to learn that potential employers check credit histories. A 2012 survey by the Society for Human Resource Management, Alexandria, Va., revealed that nearly half (47%) of employers use credit checks in hiring decisions (The New York Times May 11).
Things you can do to improve or maintain your credit score include:
- Pay all bills on time all of the time. Payment history makes up 35% of your credit score.
- Don't max out. Keep balances below 25% or 30% of your credit limit.
- Pay down debt. Don't just move it around--pay it off. And don't open several new accounts rapidly.
- Keep a healthy mix. This may include a mortgage, a credit card or two, a personal loan and perhaps a retail card.