Americans are getting more knowledgeable about credit reports, but most of us still don't really understand how much they can affect our pocketbooks, according to a survey released this week by the Consumer Federation of America.
Here's what we should know, in a nutshell: The higher your score, the lower your payments on a loan.
Only 29 percent of those surveyed were aware that a borrower with a low credit score will pay at least $5,000 more on a $20,000, 60-month auto loan than someone with a higher credit score.
Most also didn't know that credit scores mostly measure the risk of not repaying loans, not the amount of debt or financial resources held by an individual. Over half surveyed thought age and marital status also play into the score. (They don't.)
Young people between 18 and 35, who are more dependent on scores because they are more likely to need credit, generally fared better than the older generations on questions about how to improve a credit score and the importance of regularly checking your credit report.
But this group only did a little better on understanding the costs of having a low score -- 36 percent answered it correctly. And almost half of the under-35 crowd couldn't correctly identify the impact of student loans, such as whether higher loan balances lower your score. (They do.) Given that student debt recently reached $1 trillion in this country, graduates may be surprised when they don't get favorable rates on car and home loans.
Overall, federation officials are happy with the survey results, which rose over last year. (You can take the quiz yourself at creditscorequiz.org.)
Credit scores are used by a variety of service providers, including mortgage and car lenders, credit card companies, home insurers, cellphone companies, electric utilities and landlords. If that list doesn't get your attention, nothing will.
While federal law allows consumers to obtain a free credit report each year, getting your credit score will cost around $10-$12 through one of the credit bureaus. But you can get a copy of your report and one of your scores for free by going to CreditKarma.com. Using information provided by TransUnion, one of the three credit bureaus that collect the information, CreditKarma supplies the information for free and then sells advertising on the site to credit card companies and other lenders.
You must use your Social Security number to access your credit report from CreditKarma, just as you would from the credit bureaus. The company does not store your Social Security number or other personal financial data, and the site is secured with encrypted data retrieval.
With credit scores so much a part of our financial life, it's also important to clean up mistakes on your reports. Unfortunately that process is no easier than it ever was.
Complaints to the Texas attorney general's office about credit report errors have gone down over the last three years, from 377 to 219, according to Tom Kelley, spokesman for the office. The office will take complaints, but does not handle them individually on behalf of the consumer.
Thousands of people nationally have complained of errors that are difficult to clean up, according to a yearlong investigation published this week by the Columbus Dispatch.
The newspaper analyzed more than 30,000 complaints of credit report errors made to the Federal Trade Commission and 24 state attorneys general and said consumers were still having difficultly clearing their record of wrong accounts, transposed numbers, mistaken birth dates and a host of other issues.
A large portion of the complaints revolved around credit cards, mortgages and car loans that consumers had paid but were misstated in a negative light. Among the issues were houses listed as foreclosed that had been sold in a short sale and car loans paid off that were reported as delinquent.
The report said consumer efforts to clear up the mistakes were often unsuccessful.
The new Consumer Financial Protection Bureau is scheduled to come out with new rules for credit bureaus in July, the first time the bureaus will be subject to federal supervision. The bureau has received 78 comments on the proposed rules, according to a spokeswoman.
Teresa McUsic's column appears Saturdays. TMcUsic@SavvyConsumer.net