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."
Gerri Detweiler, consumer advocate and author of the Ultimate Credit Handbook, says people with scores higher than 700 usually don't have trouble getting credit loans. As the score drops, it becomes more difficult and people pay higher interest rates.
The federal government is trying to educate consumers about their credit by requiring credit bureaus to provide free credit reports to consumers once a year. That will happen in Virginia starting Sept. 1.
But free reports have had little impact on consumers' credit IQ, according to the GAO study. The study showed that those with the highest credit score knowledge fell into top income and education brackets.
Many lenders have now taken on the responsibility of educating consumers about their scores.
"Most consumers first learned about [credit scores] from a lender when declined or offered a different credit deal than what they expected," Watts said.
Chancellor Mortgage will pull a client's credit report and help them improve their score before processing a home loan application.
"If you are not used to this kind of process, it helps to sit down with someone who can walk you through the process in a non-threatening, low key environment," Angstadt said.
Her office regularly sees people who need help repairing their credit.
"They need to be educated in what their score is and what it means and how they can improve their score if it is standing between them and a loan," she said.
It's sad, she said, when someone falls in love with a dream house and loses it because they have to take the time to repair their credit.
Even one "hiccup" on a credit report can be devastating to a score, Angstadt said.
The bad news: It takes seven to 10 years to get information off your credit report.
The good news: Scores can start improving immediately with the right efforts to eliminate debts.
Experts say good credit comes from paying bills on time, keeping account balances low and only taking out new credit when absolutely necessary.
"People who do those three things faithfully, without exception, have a terrific credit rating," Watts said.
To reach MEGHANN COTTER: 540/374-5434 mcotter@freelancestar.com