It's just not surprising credit scores baffle 20 to 40 percent of consumers. The Consumer Financial Credit Bureau (CFCB) recently reported credit scores sold to consumers aren't the same as the ones lenders use - and the difference between the scores can mean the difference between a lender approving or rejecting an application for credit, including a mortgage.
FICO says its new Mortgage Score considers a market shift in consumer credit behavior and is 7.5 percent more predictive of how a borrower will handle a mortgage than the old FICO Score. Another new score, VantageScore 3.0 , is designed to generate a score for tens of millions of consumers previously unable to score a score. Some of the new scoring systems also include rent payments because renters are among the millions previously unable to score in older credit scoring systems.
What's surprising is that more consumers aren't pulling out their hair trying to keep score with all the scores.
In addition to the variety of credit scores and numerous scoring system changes, scammers abound luring vulnerable credit consumers with come-ons that include misleading and false information about improving credit scores.
What's the deal with credit scores?
In essence, a credit score is a numerical representation of your credit behavior. The higher the score, the better your chances at obtaining credit at the best price. Lower scores reduce your credit approval rating and cost you more to obtain less credit from fewer creditors.
Today's risk adverse mortgage lenders rely heavily upon credit scores to approve or reject mortgage applications.
Stephen Brobeck, Consumer Federation of America's (CFA) executive director says low credit scores can cost home buyers tens of thousands of dollars in additional mortgage loan costs and limit access to rental housing.
Consumer Federation of America (CFA) , along with VantageScore Solutions, a purveyor of credit scores, recently released a survey of more than 1,000 adults that found between one-quarter (25 percent) and two-fifths (40 percent) incorrectly answered wide-ranging questions about credit scores.
"Credit scores have become so influential in the lives of most consumers that tens of millions are severely disadvantaged by their lack of knowledge about these scores," said Brobeck.
The CFA/Vantage survey wasn't the first to find consumers perplexed by credit scores and, given the growing levels of change in the industry, confusion by large numbers of consumers isn't likely to go away.
The survey found: Two-fifths of those surveyed did not know that credit card issuers (40 percent) and mortgage lenders (42 percent) use credit scores in decisions about credit availability and pricing. Two-fifths incorrectly believe that personal characteristics such as age (43 percent) and marital status (40 percent) are used in calculating credit scores. Between one-quarter and one-third do not know when lenders are required to inform borrowers of the credit score used in their lending decision - after consumers apply for a mortgage (27 percent), when they are turned down for a loan (24 percent), and when they don’t receive the best price or other terms (35 percent). Between one-third and two-fifths do not know that the credit scores of co-signers of a student loan are affected by that loan - improving if payments are made on time (38 percent) and declining with one late payment (31 percent). More than one quarter do not know key ways to raise or maintain their scores - keeping credit card balances low (26 percent) and not applying for several cards at the same time (28 percent). More than one-third (36 percent) incorrectly believe that credit repair agencies are always or usually helpful in correcting credit report errors and improving scores.