It pays to know the score on consumer credit ratings
If consumers are as ignorant about their credit scores as a new survey indicates, it’s amazing that the rate of homeownership is at an all-time high.
GMAC Mortgage recently asked 1,000 consumers about their credit scores and found that 62% of them couldn’t quote the minimum score needed to secure the most favorable mortgage rate. (It’s 620 out of 850.) It seems 620 is just one more arcane number for people to keep track of.
More than 50% of the respondents incorrectly believe that their credit scores increase as their incomes increase; only 42% knew that paying bills on time is critical to the score.
Whether you regard credit scores as a fact of modern life or a manifestation of Big Brother’s intrusion into every transaction, they’re compiled for nearly every adult in the country by several huge firms. These data aggregators track not only bill-payment histories but also the amount of debt outstanding, length of credit history, outstanding balances and more.
The data are swirled together by yet another firm, Fair Isaac Corp., to come up with a score that not only determines mortgage-worthiness, but also may influence one’s ability to get a car loan or homeowners insurance.
The study suggested house-hunters not only check out their scores before the hunt begins but also consider doing so a year in advance, to allow enough time to smooth out any bumps that could substantially affect the interest rate a mortgage lender will offer.
The good news is that a recent federal law entitles consumers to one free credit report annually. Details are available at annualcreditreport.com or by calling (877) 322-8228.
