Many Buyers Lack Credit Score Knowledge
Some consumers lack the knowledge about credit scores, and most importantly, how you can boost it to get better deals on home loans or other type of loans.
A survey of 1,000 consumers conducted by Opinion Research asked consumers 22 questions about credit scores. On average, consumers got 60 percent of the questions right, revealing several gaps in credit score knowledge.
“They did not understand the financial cost of a low score,” says Stephen Brobeck, executive director of the Consumer Federation of America, an association of nonprofit consumer organizations. For example, a person with bad credit trying to take a $20,000, 60-month car loan, might have to pay about $5,000 or more in interest than someone with a good credit score, according to a survey by the Consumer Federation of America and VantageScore Solutions.
Many consumers also didn’t know how to boost credit scores. One common myth, for example, is that paying cash is the only way to build a good credit score. However, the amount of available credit you have isn’t what hurts your credit score and borrowers are usually better served at keeping two or three credit cards open. A credit score factors in the amount of debt you carry in relation to that available credit — and how well you pay your bills on time that matters more to lenders, the Detroit Free Post reports.
Credit scores have been dropping nationwide due to economic hardship. About a quarter of customers — nearly 43.4 million — had a credit score of 599 or below, which is considered poor risk, and likely won’t qualify them for loans. Or, they’ll have to pay dearly for mortgages or car loans, according to FICO.
Consumers are entitled to a free copy of their credit reports once a year from each of the three nationwide credit-reporting companies. Visit www.annualcreditreport.com.
Source: “Knowledge Lacking on Credit Scores,” Detroit Free Press (March 10, 2011)
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Loan Modifications Hit Credit Scores
Applying for a mortgage modification and being in a months-long trial period can devastate a home owner’s credit score.
Under the government plan, troubled borrowers can have their mortgage payments reduced to 31 percent of their pre-tax income. They are first put in a trial modification for several months to test whether they can meet the requirements of the new mortgage.
Borrowers who were previously current on their mortgages will see their FICO scores fall about 100 points while they are in the trial period, according to the Treasury Department. Borrowers who were previously late or missed payments will see their scores fall more, the government says.
The longer a borrower is in the trial period, the greater the impact on their credit scores, Once the modification is approved, the borrowers’ mortgage credit status will be listed as current and that should improve their scores, the Mortgage Bankers Association explains.
Even so, the delinquency remains on credit reports for up to seven years and can make getting credit for something else like a car difficult and expensive, borrowers report.
Source: CNNMoney.com, Tami Luhby (12/28/2009)
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New FICO Credit Score Debuts
By JANE J. KIM
Fair Isaac Corp. is rolling out its new-and-improved FICO score, but it’s likely to take a while before consumers see how they stack up under the new system.
On Thursday, Fair Isaac and one of the three major credit bureaus, TransUnion LLC, will start offering the revamped score, dubbed “FICO 08,” to lenders. Equifax Inc. is expected to follow in the second quarter, while Experian Group Ltd. declined to comment due to pending litigation with Fair Isaac. Full Story.
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