How dumb are you about credit scores? A new online quiz can help you find out.
Scores are a big deal.
A consumer with low credit scores could pay $5,000 more in interest over the life of a typical five-year car loan than a consumer with high scores, which highlights the need to know about the often-confusing topic, consumer advocates said Monday.
The online 12-question quiz, newly redesigned and released Monday, is at creditscorequiz.org and was developed by the Consumer Federation of America and VantageScore Solutions.
On Monday, those groups released the fifth annual survey of consumers’ knowledge about credit scores that showed “serious consumer knowledge gaps remain.”
For example, only 20 percent of Americans knew in the car loan example how much low scores could hurt their wallets. And 40 percent believe that credit repair companies are always or usually helpful in raising scores, when consumer-protection officials agree they offer poor value and might be more harmful than helpful, the consumer federation said.
The good news is that this year’s survey, done in April, showed small, across-the-board improvement in consumer knowledge about credit scores, said CFA Executive Director Stephen Brobeck.
For example, fewer Americans think, correctly, that age, marital status and ethnicity are not used to calculate credit scores. A higher percentage understand that making loan payments on time and using a credit card but keeping low balances helps to raise a low credit score or maintain a high one.
Credit scores are notoriously confusing to consumers, in part because the precise formulas to calculate them remain industry secrets of companies that sell scores to lenders. And some seemingly harmless actions, like closing unused credit card accounts, can hurt your scores. Consumers also have many credit scores, not one, that can take into account different criteria depending on lender or type of loan. For example, credit scoring differs for auto loans and mortgages.
Besides taking the quiz to learn more about credit scores, getting your credit reports — which scores are based on — might help. The survey showed those who got their credit reports in the past year had significantly greater credit score knowledge than those who didn’t.
By going to annualcreditreport.com or calling 877.322.8228, consumers can access a report for free once a year from each of the three main credit bureaus, Equifax, Experian and TransUnion.
While credit scores are designed to assess the risk you will pay back a loan, they can be used for other purposes, such as applying for wireless phone service, an apartment rental or utility service. Scores can also affect home and auto insurance premiums.
Among generic credit scores, not FICO, a score above 700 — on a scale of 300 to 850 — is generally considered good, according to the quiz.
While consumers must pay to see their most commonly used score, called a FICO score at myfico.com, more generic scores can be had for free at some independent websites, like creditkarma.com, Quizzle.com and Credit.com. Some banks also offer scores to their customers.
Generic scores in the mid-600s are poor, probably meaning you will pay more than average or be denied credit.
Someone with a good score may lose 70 to 90 points for missed payments on credit card or automobile loans, and more than 100 points for missing a mortgage payment.
While paying your bills on time, every time, is the most important factor in scoring models, just carrying high balances can hurt your scores, even if you always pay.
Experts suggest keeping balances below 25 percent of your limit — or $250 on a card with a $1,000 balance.
