What hurts your credit? Many have no clue
(MoneyWatch) Your credit score has a huge impact on how much it costs to borrow, but many Americans haven't a clue as to what actions can help or harm their score, according to a new study.
"Credit scores have become so influential in the lives of most consumers that tens of millions are severely disadvantaged by their lack of knowledge," Stephen Brobeck, executive director of the Consumer Federation of America, said in a statement.
A low score can cost a car buyer more than $5,000 in hiked financing costs, according to the consumer advocacy group, which jointly conducted the study with credit scoring firm VantageScore Solutions. Those buying a home could pay tens of thousands more -- if they're able to get a loan at all. Unbeknown to many consumers, your credit score can also affect your auto insurance rates, your ability to rent a home, secure a reasonably priced cell phone and even get a job.
The only thing most consumers seem to be sure of is that paying your bills on time is pivotal in maintaining good credit. Some 94 percent of those surveyed got that question right.
On the other hand, almost everyone (93 percent) whiffed on a question about comparison-shopping for a mortgage. It doesn't hurt your credit score to have multiple mortgage inquiries during a one- to two-week window. Credit scoring models assume that means you're rate-shopping and look at it as one inquiry rather than many.
- Bad credit ratings sinking job hunters
- Young people as economically illiterate as ever
- Busting credit score myths
Other areas where many consumers are ignorant:
- 42 percent didn't know that their credit score would affect the interest rate they were offered on a home loan, and 40 percent didn't know it could also affect their credit card rates.
- Does your age matter to your credit score? A whopping 43 percent said yes. It doesn't.
- How about your marital status? The correct answer is no. But 40 percent of those surveyed thought it did.
- Can your score be damaged -- or helped -- by co-signing a loan? Correct answer: Yes. Roughly one-third of those surveyed said no.
Meanwhile, more than a third of respondents thought that credit repair agencies could help boost your score. In reality, they rarely have a positive impact. When they do, it's often temporary. And more than a quarter didn't know that applying for several credit cards at one time would hurt their score.
The same percentage didn't know that having average balances that are close to their credit limits also hurts your score. (Ideally, consumers should be using less than half of the credit they have available and the lower the percentage the better.)
Other noteworthy results: Women know more about credit scores than men, being generally more knowledgeable about whether their age and marital status affects their scores, who collects their credit information, and what constitutes a good score. Men, however, are correctly more skeptical about the value of credit repair agencies, with just 32 percent believing these agencies are always or usually helpful, compared to 40 percent of women.
Want to test your credit IQ? Check out VantageScore's quiz here.
