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What you don't know about credit scores can cost you

The Consumer Federation of America (CFA) released its sixth annual survey of credit scores today, and it showed that consumers -- particularly older Americans -- have learned from mistakes made during the last recession. But they still have a way to go.

One of the biggest gaps, said CFA Executive Director Stephen Brobeck, is underestimating the effect of low credit scores, which typically can add 5 percent to 20 percent to the cost of a loan. For a $20,000, five-year car loan, this ups the repayment by $5,000, he noted.

Only one in five consumers realized just how much this would cost them. A "low" credit score is typically 620 or less on the traditional 850-point scale.

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While most people understand that credit scores are important in getting a loan or a mortgage, Brobeck said that a "significant minority" aren't aware that "noncreditors," such as landlords, electric utilities and wireless providers will also run your credit report before deciding whether to rent to you or what your initial security deposit should be.

Insurers -- particularly car insurers, but home insurers as well -- also use credit scores wherever possible to determine who's a good "risk" for coverage. While never officially stated, their assumption is that a person with a low credit score is statistically more likely to file multiple claims. States such as California have limited or outlawed the use of credit scoring by insurers.

Of significance, only half of the 1,000 consumers the CFA polled realized that lenders are required to inform borrowers of their use of credit scores, such as after a mortgage application, when the applicant doesn't receive the best terms for the loan, or whenever the applicant is turned down for the loan. Two in five also think marital status and age figure into credit scores, but they don't.

According to the CFA, the good news is that more than 80 percent of those polled knew the "basic facts" about credit scores, and nine out of 10 knew the danger signals that can damage them: missed payments, bankruptcy and high credit card balances.

"For the most important facts about credit, the stats have never been higher," said Brobeck.

But the bad news is there's a significant knowledge gap on credit between Gen X (35-51), who've been through several economic cycles, and millennials (18-34), who are coming of age and just learning how to use credit.

Of course, many of these younger people could have just graduated from college with an average of $36,000 in debt. On eight of nine questions on the CFA "quiz," Gen Xers scored higher.

Most millennials, however, admitted in the survey that their knowledge of credit scores wasn't that great. Equally surprising was the fact that despite their computer literacy, millennials hadn't gone online as often to obtain free credit score reports. "It's important to make sure that your report is accurate," said Brobeck, "particularly if you have a common name like 'Jones.'"

This marks the sixth year that the CFA has worked on the report with VantageScore Solutions, a company set up by three big credit reporting companies -- Equifax (EFX), Experian (EXPGY) and TransUnion (TRU) -- to compete with FICO (FICO), the largest provider of credit scores.

VantageScore CEO Barrett Burns said consumers now have more power over their credit. Previously, lenders had to share this information with the consumer, but now the consumer has many access points and websites from which they can get and understand this information before applying for a loan. A prospective borrower can call (800) 322-8228 or use a website such as

In addition to replying to questions about credit scores, the CFA and VantageScore have a credit score quiz website that allows consumers to test their knowledge by answering 12 questions.

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