When it comes to credit scores, many people understand the basics but not the nitty-gritty. So shows a new survey from the Consumer Federation of America and VantageScore Solutions.
The critical knowledge gap has huge financial implications. Only 22 percent of those polled know that a low score, compared to a high score, typically increases the cost of a $20,000, 60-month car loan by more than $5,000. More than half don’t understand that credit scores are used by non-creditors such as insurance and utility companies, or that a low score could keep a landlord from renting to them.
Know the facts
No two late payments are alike. Someone who is a month late on a large debt will be evaluated differently than someone two days late on a small debt.
Credit limits matter
“People think closing their credit cards will help their scores. This is a mistake,” cautions Brian Diez, CEO of HowtoFixMyCredit.com. “If you close a card, then the available limit is deducted from your debt utilization. You may go from using 10 percent of your credit limit to 90 percent just by closing one credit card.”
The cost of a low score
A low score can even hurt your chance to get a loan.
“If you have a low credit score, you may not get the loan, or get a loan with a very high interest rate, costing you thousands of extra dollars in interest,” says Rakesh Gupta, a business professor at Adelphi University in Garden City.