Credit Scores Grow in Importance


Do you know your credit score?

If you don't, you're not alone. Forty percent of Americans have never obtained their score, according to a survey commissioned by the Consumer Federation of America and Washington Mutual. That means a lot of consumers don't know anything about the number that affects their ability to get a mortgage, a low interest rate on a credit card, and even a job.

"Credit scores have become one of the most important numbers in the lives of Americans," says Stephen Brobeck, executive director of the Consumer Federation of America. Employers, for example, increasingly look up prospective employees' credit scores to judge their level of "personal responsibility," he says.

That's why Brobeck is concerned that so many people still don't know how credit scores are calculated and how to get a good one. People often incorrectly assume that income, age, and race influence the score, he says, which may make them less motivated to try to improve it. (Scores are based only on credit history.) According to the survey, most people also don't know that cellphone companies, landlords, and home insurers often use the scores as part of customer background checks.

People can improve their scores, which for the most part range from 300 to 850, by making on-time payments, paying off debt, avoiding charging more than half of their credit lines, and keeping cards in good standing for long periods.

Just one late payment can cost a person thousands of dollars over the following five to 10 years because credit card companies base interest rates on credit scores, says Anthony Vuoto, president of Washington Mutual card services.

The bank has developed a score simulation test to show how different factors would influence a score of 670. If a payment is missed on an otherwise up-to-date account, the score could drop 25 to 60 points. Six months of on-time payments would be likely to improve the score by 20 to 50 points. Paying down 90 to 100 percent of revolving balances could cause as much as a 100-point improvement.

Even small score increases can generate significant savings. Washington Mutual estimates that raising a credit score by 30 points would save an average consumer $76 a year in credit card finance charges. According to the website, that same 30-point increase would save about $20 a month on a 36-month car loan.

Brobeck says once customers' scores fall below 660, they are no longer considered good candidates for prime interest rates. Customers with scores below 600 are usually forced to pay high subprime loan rates.

Of course, before you know whether your score needs to be improved, you need to know what it is. You can visit to get your number.

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