Most people misunderstand their credit score.

By MEGHANN COTTER

Date published: 4/2/2005

Suzanne Tulloss explains credit scores to customers at People's Community Bank all the time.

The assistant vice president for the Stafford branch says many people don't know that actions, such as applying for credit, keeping high balances and opening too many accounts can drag them down.

"It's confusing," Tulloss said. "It's even confusing sometimes for the bank."

At least half of all Americans don't understand their credit scores, according to a survey from the Consumer Federation of America and Fair Isaac Corp. But experts say that information is a vital part of financial success.

Scores range from 300 to 850. The higher the score, the better credit risk a person is.

Most people score in the 600s and 700s, according to the brochure put out by the Consumer Federation of America and the Fair Isaac Corp. One hundred points, however, can drastically impact a person's ability to get credit.

Credit scores are figured by a complex equation, designed to analyze patterns in consumer behavior. Factors include payment history, amount of debt, the length of credit history, how long someone has used credit, how often someone applies for credit and the type of credit used.

The number is a generic way for creditors to analyze and compare consumers and judge how likely they are to repay debts.

"A lot [of consumers] don't understand they have a score most of the time," said Deb Angstadt, CEO of Chancellor Mortgage in Fredericksburg. "They know they have credit and a credit report."

A recent study from the U.S. Government Accountability Office found that 70 percent of people could define credit score, but only 28 percent could name a number within the possible range.

Craig Watts, spokesperson for Fair Isaac, said the lack of understanding is because scores are a new concept to consumers.

Credit reports have been around since the 1950s, he said. But scores were an internal process of determining a person's credit risk until about four years ago, when credit bureaus decided that consumers should have access to the same information that creditors did.

Still, many consumers think the information in their credit report is more important than the score. Creditors don't tell consumers their credit application was denied because of their score. Law requires them to give specific reasons.

Tulloss says the importance of the three-digit number depends who is looking at it. People's Community Bank tries to look at what information in the report has led to a low score, while many larger banks, she said, want to see a high number.

But Watts said consumers who know their scores have a better idea of how they rank and how much work needs to be done to be in good standing.

"It is an easy way to track how you are doing," Watts said. "Creditors look at the number and issue credit based on what profile they want their customers to have."

Date published: 4/2/2005