Consumers Are Getting Smarter About Credit Scores, but Remain in the Dark on Key Points

Americans have become more informed about certain aspects of their credit scores, but most still don’t know enough about the risks associated with low scores and alleged “credit repair” services, according to a recent report issued by the Consumer Federation of America (CFA) and VantageScore Solutions.

For instance, consumers taking the CFA’s Credit Score Quiz this year had a better understanding of which types of organizations use credit scores — an increase of 8% since the quiz was last administered. In addition, more of those polled knew who collects the information that influences credit scores (up 7%); what is considered a good credit score (up 4%); and the importance of checking the accuracy of credit reports (up 9%).

However, most still falsely believe that credit scores are influenced by their age (56%) and marital status (54%), while 21% think ethnic origin plays a role in determining their scores. And approximately half (51%) are under the false impression that credit repair companies are typically helpful in fixing errors and improving scores, even though such firms often charge high prices to perform services that consumers could do on their own.

What You Can Do

A typical credit score will range between 300 and 850 points. Although all lenders make decisions based on the particulars of the lending situation, generally speaking, the higher your score, the lower the perceived risk to the lender, and the more attractive the interest rate you will be offered.

A few tips for raising or maintaining a higher credit score include:

• Paying your accounts on time and keeping your balances low. Lenders are looking for a proven track record of making timely payments. Payment history determines about 35% of your credit score.
• Being conservative in the amount of available credit you use at any given time. About 30% of your score is determined by what the industry refers to as your “utilization ratio,” which is the amount you owe in relation to the amount of credit available to you. If that percentage is more than 50%, your score will be lower.
• Holding on to older, unused accounts. The longer an account has been open and managed successfully, the higher your score will be.

Maintaining a diversified credit mix. If you hold an auto loan, a home mortgage, and credit cards that are well managed, you will generally have a higher credit score than someone whose credit consists mainly of finance companies.