Credit scores still just don't quite add up for many consumers and that could mean they won't make the grade when it comes to getting their mortgage application approved at the best rate -- or at all.

In 2003, credit scores were a mystery to nearly 70 percent of those in households with incomes under $35,000, according to the Consumer Federation of America's "Credit Scoring Report".

Most, approximately 65 percent of consumers still didn't fully understand credit scores in 2004, when San Francisco-based Providian Bank joined the federation to produce "Most Consumers Don't Understand Their Credit Scores".

And now in 2005, many consumers have yet to grasp, when it comes to landing a mortgage, and a host of other financial services, you are what you score.

In just one example of how clueless consumers are about credit scores, the vast majority of them remain unaware that the higher the credit score, the lower the mortgage rate, according to a GMAC Mortgage national telephone survey of 1,057 households this year between May 13 and May 16.

GMAC Mortgage and other lenders want you to get it, especially if you have a high score, so they can write you a loan and make money. You want to know your credit score because it will save you money.

That's key in a hot housing market where a lower rate can make the difference between being able to afford monthly mortgage payments -- or not -- and landing a loan. If your score is low and you know it, you can improve it (over time) and land a loan you might not otherwise receive.

Minneapolis, MN-based Fair Isaac, the company that pioneered credit scoring with its leading "FICO" brand (there are others), breaks it down by revealing the principal and interest payments on a $150,000, 30-year, fixed-rate loan, with mortgage rates from early August and FICO scores.

A credit score, used by the vast majority of lenders to approve or deny a mortgage application, is a statistical analysis of a consumers' creditworthiness generated, in part, from information on a credit report. A credit report tracks credit consumers' payment records on individual credit accounts and reveals how well or how poorly each account is being paid.

The reports also document "derogatory" remarks, notices of liens, judgments, frequent late payments and others as well as remarks from the consumer, consumers' identifying information and other data.

Credit reports also reveal your level of indebtedness, credit type and use, level of monthly payments, the number of open credit cards, available, but unused credit, credit inquiries and requests and a host of other factors also tossed into the scoring software.

Scores range from 300 to 850, with low scores reflecting poor credit and netting consumers less chance of loan approvals or approvals with higher loan rates. Consumers with higher scores are more creditworthy, are approved for loans more often and get cheaper loan rates.

In the past, three credit reporting agencies -- Equifax, Experian, and TransUnion -- have by and large been the keepers of traditional credit reports and scores. Borrowers who don't use traditional credit -- credit cards, installment loans, auto loans, and the like -- don't show up on the radar, but recently gained access to special scoring systems using credit data previously not crunched by the credit reporting and scoring triumvirate.

Conducted for GMAC by Caravan Opinion Research Corp., the latest survey on traditional credit scores revealed:

• Most consumers, 62 percent, did not know that a score above 620 out of 850 is necessary to secure the most favorable mortgage rate. The higher the score, the greater the chance a loan application will be approved and the better the chance the mortgage rate will be lower.

• More than 50 percent incorrectly answered that increased income level will raise one's credit score. A boat load of disposable income doesn't amount to a hill of beans when it comes to your credit score if you have a high debt-to-income ratio, maxed out credit cards or even numerous credit cards with small balances and high credit limits. The small balances and high credit limits could tell the lender you've got access to money to burn yourself right into a debt hole you may not be able to climb out of.

• Only 42 percent knew that payment history was a critical determinant to a credit score. Your credit history reveals the trend for your paying habits and is a key factor in determining your score. All things being equal, if you tend to miss payments your score will suffer. If you are on time, all the time, your score will improve.

• Too few check their credit near enough to the time when they plan to purchase a home -- 64 percent of the respondents check their credit only six months before purchasing a home. Check within a month or two before anyone pulls your credit report. Surprises can stop your loan application cold.

"Potential home buyers should not view credit ratings as the last step in the home financing process. Credit scores are essential to the mortgage lending process and it's important that home buyers start evaluating their credit scores early in the process so they can get above the 620 mark before their formal application is processed," said aid Paul Fein, senior vice president and southeast divisional manager, GMAC Mortgage.

"We are encouraged to see that 92 percent of consumers polled are taking some action to improve their credit; however consumers must be educated on what actions will and will not affect their ability to secure home financing," he said.

Some states grant you access to free credit scores under certain conditions, but anyone can purchase them along with your free credit report. Under federal law credit reports are free, once a year, from each of the three credit reporting agencies for most of the nation now and the eastern states by September 1.

For more information, visit AnnualCreditReport.Com.

Published: August 5, 2005

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Broderick Perkins parlayed a career in old-school journalism into a contemporary digital news service that really hits home. The award-winning consumer journalist, originally from Wilmington, DE, is founder, publisher and executive editor of the bootstrap DeadlineNews Group, a Silicon Valley-based editorial content and consulting service specializing in residential real estate, consumer news and related editorial consulting services. The DeadlineNews Group includes the website, DeadlineNews.com, offering real estate editorial content and consulting services, and its back shop, the Deadline Newsroom, an open house on news that really hits home. Perkins obtained his formal journalism education from University of Delaware and a journalism boot camp, the Institute of Journalism Education at the University of California-Berkeley. He went on to 20 years of service as a daily newspaper journalist at the Wilmington, DE News Journal and San Jose, CA Mercury News. Perkins covered housing on the San Jose Mercury News reporting team which earned a General News Reporting Pulitzer Prize in 1989 for coverage of the Loma Prieta earthquake. He has also produced real estate, consumer and small business content for the Wall Street Journal, Los Angeles Times, RealtyTimes.com, Nolo.com, Better Homes and Gardens, the National Association of Realtors, Homestore/Move and Intuit/Quicken among more than three dozen publications. In addition to managing the DeadlineNews Group, Perkins most recently served as chief editorial consultant for Nolo's Essential Guide To Buying Your First Home, Nolo, and writes real estate television scripts for RealtyTimes.com.