Although consumer understanding of credit scores has improved over the past year, it remains poor, according to the latest credit score survey commissioned by the Consumer Federation of America and Washington Mutual Bank.
Fewer than one-third of Americans, for example, understand that credit scores indicate risk of not repaying a loan, rather than factors like knowledge of, or attitude toward, consumer credit.
"Lack of consumer knowledge about credit scores not only increases the costs of their credit and insurance, but also reduces the availability of these and other services," said CFA Executive Director Stephen Brobeck.
However, learning about these scores and applying the knowledge can significantly raise them.
"By taking a few simple steps, American consumers have the power to reduce their collective credit costs by billions of dollars annually," said Anthony Vuoto, president, Washington Mutual Card Services.
For this report, WaMu -- using data supplied by Argus Information and Advisory Services -- estimated that U. S. consumers could reduce card finance charges by $105 annually if they raised their score by 30 points. If all consumers raised their scores by 30 points, total annual consumer savings would be an estimated $28 billion.
Consumers can raise their credit scores in many ways, especially by:
• Consistently paying their bills on time every month.
• Not maxing out, or even coming close to maxing out, their credit cards or other revolving credit accounts.
• Paying off debt rather than just moving it around, as well as not opening many new accounts rapidly.
• Regularly checking their credit reports, which can be obtained for free, to make sure they are error-free. Federal law requires the three main credit bureaus -- Experian, Equifax, and TransUnion -- to make available to consumers, upon request and at no charge, one credit report per year at www.annualcreditreport.com.
In August 2005, May 2007, and June 2008, Opinion Research Corporation (ORC) conducted extensive surveys of consumer knowledge of credit scores for CFA and WaMu. In all three years, ORC surveyed more than 1,000 representative adult Americans. The margin of error in these surveys is plus or minus three percentage points.
