A recent study showed that while consumers understand credit scores better than they used to, many still don’t fully appreciate the workings of credit scores, the value of a high score, and how low scores can be.
Almost everyone knows mortgage lenders and credit card issuers use credit scores in making their decisions, and some people realize landlords, home insurers, and cell phone companies also check consumers’ credit ratings. However, far fewer individuals were aware that many employers checked credit scores as part of pre-employment background screening.
Credit reports and scores are so important to consumers that they should make it a priority to understand them.
Here are some key areas the study showed deficiencies in credit score understanding.
Only 29% were aware of the cost of low scores on a $20,000, 60-month auto loan — a borrower with a low credit score is likely to pay at least $5,000 more than a borrower with a high credit score.
Fewer than half — 44 %— understand that credit scores typically indicate the risk that a borrower will not repay loans, as opposed to the total amount of debts.
Just over half of respondents said that credit repair companies are “always” or “usually” helpful in fixing credit report errors and boosting scores. This is a common misconception. These types of “credit repair” companies often make unrealistic promises and charge for services that consumers can do on their own. There is absolutely NOTHING these companies can do that a consumer can do for FREE.
The best strategy for consumers to raise their scores is by consistently paying their bills on time every month, avoid maxing out their credit cards, and paying down debt rather than just shifting it around. Simple and Easy.