A new survey suggests that consumers who are informed about credit scoring and put that knowledge to use save billions of dollars each year. Although consumer understanding of credit scores has improved over the past year, the credit card score survey commissioned by the Consumer Federation of American (CFA) and Washington Mutual (WaMu) shows that only 31% of Americans are aware that a low credit score may indicate to lenders a higher risk of default.

“Lack of consumer knowledge about credit scores not only increases the costs of their credit and insurance but also reduces the availability of these and other services,” said CFA Executive Director Stephen Brobeck. “By taking a few simple steps, American consumers have the power to reduce their  credit costs by billions of dollars annually,” says Washington Mutual Card Services President Anthony Vuoto. Using data provided by Argus Information and Advisory Services, WaMu estimates that U.S. consumers could annually trim credit card finance charges by $105 by raising their credit score by 30 points.

“This lack of knowledge hurts consumers because credit scores strongly influence the availability and cost of not only mortgage, auto and revolving credit, but also other services such as utilities and insurance,” said Stephen Brobeck, executive director of the CFA (Consumer Federation of American).

Consumers with credit scores below 600 are almost always charged relatively high “subprime” loan rates, while those with scores above 700 are often charged relatively low “prime” rates, while those with scores above 760 are generally charged the lowest rates. With higher credit scores meaning lower interest rates, the estimated collective annual consumer savings would be approximately $28 billion, if every consumer raised their score by 30 points.

The survey revealed numerous gaps in consumers’ awareness of credit scores with 59% of respondants not understanding that maxing out their credit card will lower their score. While 78% of those surveyed understood that making a payment more than 30 days late will negatively effect their score. “Many Americans fail to understand that one’s credit score reflects only how they use credit, not factors such as income and age,” the press release says.

Learning what effects your credit score and applying that knowledge can have a significant impact. Here are some of the basics:

• Consistently pay your bills on time
• Never use more than 50% of your credit limit on a credit card
• Don’t open multiple or unnecessary accounts
• Regularly review your credit reports for errors

Posted in Credit Tips, News & Info

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