According to the study, 31% of consumers knew that lenders use credit scores to assess risk, 21% said they thought the score represents their financial resources to repay loans, and 41% didn't know that using a credit card's entire limit lowers their score. Many consumers believed marital status, residency, and education were factors in their credit score.
Your credit score--that three-digit number summarizing your credit history--is a critical factor in a lender's decision to grant you credit and at what rate. While lenders are the primary users of credit scores, some employers, landlords and insurance companies also use them to evaluate applicants.
Therein lies the problem. If you purchase your credit score from Fair Isaac Corp. at FICO.com, you get a FICO Score. If you request a free TransUnion or Experian credit report from annualcreditreport.com and also purchase your credit score from that website, however, you'll get a VantageScore. And if you use any of these sites--experian.com, freecreditreport.com, consumerinfo.com, creditexpert.com, or familysecure.com--you'll get a PLUS Score, which typically isn't used by lenders (SmartMoney.com May 1).
If you're not confused yet, try this: Each of these credit scores has a different numbering system, which means a score of 800 from FICO is considered very good, while the same score from VantageScore would be considered a grade equivalent to a "C."
If you can't remember all that, then remember this: Most mortgage lenders use the FICO Score.
The best advice, then, is to ask your lender which credit score it uses to determine your creditworthiness. Also, a clean credit history will boost all your credit scores. Before you apply for credit, take steps to clean up your credit report:
- Pay all bills on time;
- Keep each account balance at less than 25% of your available credit limit;
- Don't close old accounts--or open a flurry of new accounts--right before you apply for credit; and
- Don't co-sign for another person with bad--or no--credit.
For more information, read "Tough Times Series: Credit Savvy Is Key to Avoiding Costly Missteps" in Home & Family Resource Center.
courtesy of cuna.org