Date: July 11, 2008
WASHINGTON - US consumers remain in the dark about how the credit-scoring system works in obtaining mortgages, insurance, and credit cards, costing Americans as much as $28 billion each year, a survey concluded.
Credit scores are a vital but often overlooked part of financial health. The number, also known as a FICO score, determines interest rates on credit cards, and is being used increasingly by insurance companies to set rates and by employers in hiring decisions.
"The good news is they know more about what will affect their scores," said Stephen Brobeck, executive director of the Consumer Federation of America. "The bad news is they don't know what their score means."
Paying bills on time and not maxing out credit cards will improve scores, the Consumer Federation and Washington Mutual Inc. said yesterday.
The survey showed improvement from previous years, with 28 percent correctly identifying 700 as the minimum score to qualify for a prime mortgage rate, up from 24 percent last year. Washington Mutual and the consumer group surveyed more than 1,000 Americans in June, with a margin of error of plus or minus 3 percent.
People responding to the survey didn't understand that credit scores are based on payment histories and how they've used credit in the past. Many respondents said factors such as income, age, marital status, and education levels influence credit scores, the consumer federation said. They don't.
Consumers are assigned credit scores on a scale of 300 to 850, with 700 or above considered prime. Below 600 is considered "subprime," with greater lending risk.
A low credit score means you'll spend more to borrow. Raising a credit score by 30 points translates into an annual credit-card finance-charge saving of $105, according to Anthony Vuoto, president of Washington Mutual Card Services. If all consumers raised their scores that much, the savings would reach $28 billion, he said.
Scores can be improved by paying off debts. Paying more than the minimum due on credit cards also improves your FICO score. Missing a single payment by more than 30 days may lower your score 25 to 50 points, Vuoto said.
Source: http://www.boston.com
