How Important is Your Credit Score?
7:26pm May 14, 2013
Over the past few years, a number of new laws governing consumer credit have gone into effect. A study released this week looked at what consumers know about their credit score and its importance.
The study's findings show that most Americans have at least a fair understanding of what credit scores are, and how to improve their scores by paying credit card and other installment debt on time each month. That’s the good news, according Stephen Brobeck, Executive Director of the Consumer Federation of America.
"The bad news is a very substantial minority know very little about credit scores," says Brobeck. "They don't understand the scores measure credit risk, that they're determined by credit and payment history rather than by personal characteristics such as marital status or ethnicity or age, and perhaps more importantly, they don't understand what the cost of having low scores is." Brobeck says a low credit score could add thousands of dollars to a new car loan, and tens of thousands of dollars in higher interest charges on a mortgage loan.
Before applying for an expensive loan or mortgage, Brobeck says it’s important to find out what your credit score is, and if it’s low, take steps to build it back up. He says it’s also important to make sure your credit report is accurate. "Congressional law requires that consumers be given that access for free on an annual basis," he says. "You can review your credit report for free once a year by going to the website www.annualcreditreport.com."
Brobeck says Congress passed another important law: if you’re denied credit or are denied the best terms for your loan, the creditor has to provide you with your credit score. The CFA conducted the survey of more than a thousand people as part of their financial education program. The organization has an online quiz to test your credit savvy at www.creditscorequiz.org.