By Madeline Daniels, America Saves Digital Communications Manager
What you might not know about credit scores could cost you thousands of dollars on a single loan, according to a new survey by Consumer Federation of America (CFA) and VantageScore.
While a vast majority of people know the basics, such as that credit scores are used by mortgage lenders and credit card companies, that knowledge is limited when it comes to more specific details. And the consequences can be hundreds of dollars a year in additional fees and interest.
Here are four credit score details you should know that could save you money:
1. Low scores can cost you thousands
A low credit score (mid-600s), compared to a high credit score (700), typically increases the cost of a 60-month, $20,000 auto loan by more than $5,000. The costs are even higher for a mortgage.
Unfortunately, many underestimate the cost of a low credit score and just 22 percent of survey takers knew just how much money was at stake.
2. Credit scores are used by non-creditors
Utility companies, home insurers, cell phone companies, landlords, and others may use credit scores to determine things like if they will offer you a contract or the amount of your initial deposit.
This can affect where you live, how much you need to save for a deposit on an apartment, and even what cell phone plan you are eligible for. Yet a significant minority of respondents did not know their credit score would be used for reasons other than obtaining credit.
3. When lenders tell you they used your credit score
You may not always know when a lender has used your credit score. The only times lenders are required to let you know is after you apply for a mortgage, when you do not get the best available loan terms, and when you are turned down for a loan. But if you didn’t know this, you aren’t the only one. About half of those surveyed knew when lenders are required to inform borrowers of their use of credit scores.
If you ever receive a notice from a lender that they used your credit score, and you don’t understand their reasons for turning you down or not offering you the best terms, be sure to visit reasoncode.org, a VantageScore website that aims to put an end to your credit score questions.
4. How your credit scores are calculated
Your credit score is determined by how credit is used, not who is using it.
While most know that key factors used to calculate credit scores include missed payments, personal bankruptcy, and high credit card balances, fewer understand what does not get factored in. Two-fifths of survey takers thought marital status and age were part of the calculation, even though they are not. The only way to improve your credit score is by practicing good credit habits.
Looking for more? Be sure to test your credit score knowledge at CFA and VantageScore’s creditscorequiz.org and learn more about credit score basics and details.
This blog was originally published on the America Saves blog.