Consumers Fail To Understand Credit Score

[jeffrey]

Even though credit scores are one of the most important and relied upon sources that can impact your financial life, people still don't understand how the scores are compiled. Since these scores can have a huge impact on your finances and the amount of money that you pay to get loans, this news is discouraging.

According to a new survey by Opinion Research Corporation for the Consumer Federation of America (CFA) and Fair Isaac Corporation, 49% of the respondents didn't understand that a credit score measures an individual's credit risk. In addition, 45% of respondents incorrectly thought that increasing your income will result in an increased credit score.




"Despite all of the news coverage about credit scores over the past year, many consumers still do not understand important facts about these increasingly influential numbers," said Stephen Brobeck, CFA executive director.

Credit scores are used by an increasingly larger number of people including employers, financial lending institutions, landlords, insurers and utility companies to determine your risk. The higher your credit score, the better the financial terms you'll receive from them.

Credit scores range from 300 to 850 with 850 being a perfect score. To understand how costly poor credit scores can be, a difference of as little as 100 points can mean you would pay several percentage points more for a housing loan which can result in hundreds of dollars more each month to your mortgage payment.