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Nearly everybody knows that paying loans on time can help raise their credit score. But beyond that, a large percentage of Americans know little about their scores, a new survey found.
May 13 -
If they get on their high horse, bankers risk coming off as disingenuous. Concentrate instead on developing products that will help consumers meet a specific financial goal.
May 2 -
VantageScore's new credit scoring model ignores accounts that were referred to collection agencies but then paid off. The company cites cold, hard numbers for its decision to drop a controversial practice.
March 11
Consumer credit scores remain a hot topic. An
According to the CFA's survey, about 40% of Americans don't know that most lenders use credit scores to determine an applicant's eligibility for a loan or credit card and what the terms will be. Yet 94% of respondents recognize that making loan payments on time helps raise credit scores. This stat indicates the majority of us have a good understanding of how credit scores work and even those in the minority know that paying your bills on time improves your credit score.
There is no secret here. Legislation is already in place to make credit score information readily available. By law, all consumers are entitled to a free credit report each year. The Dodd-Frank Act requires lenders to provide free credit scores to consumers when they are turned down for credit or don't receive the best terms available for a loan or credit card. In March, The
Despite all of the transparency about the importance of credit scores and how they are calculated, confusion persists. People either aren't interested or more likely don't like to face the result of their actions. For many consumers, maintaining good credit is not worth the effort. That is their choice. You can't teach someone how credit reports work or how to use credit responsibly unless they want to learn. The bottom line is there will always be some percentage of the population who don't get it or who simply don't care.
Recently, a state senator in Montana
Based on the bill's stipulations, I'm not certain this senator fully understands how credit scores work. Here's why: multiple inquiries are only one of the criteria used to determine credit scores and, in most cases, don't have a significant impact on scores.
Moreover, lawmakers are not the ones best positioned to mandate changes to credit scoring models. Lenders and analytics firms create models based on consumer behavior. These models are statistically derived by credit risk analysts to rank the risk of consumers. This modeling approach has proven effective for more than 40 years and continues to evolve over time to provide more precise results. Legislation that restricts model changes blocks lenders from making the most accurate credit decisions possible. Accuracy is essential to have a reasonable amount of credit available for qualified borrowers. Nobody wants to see another subprime lending crisis.
Stephen Brobeck, executive director of CFA,
The road to a good credit score? Pay your bills on time, check for errors on your report occasionally, keep your oldest line of credit open when possible and don't apply for multiple lines of credit you don't need. It's really pretty straightforward.
Karen Gordon is public relations strategist for Zoot Enterprises Inc., a provider of loan origination, account acquisition and credit risk management solutions for large financial institutions. You can follow her on Twitter @karenrgordon.