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  • For many, mystery of credit scores is declining

  • After all the education that's been spread about credit scores, consumers are finally getting it.
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  • After all the education that's been spread about credit scores, consumers are finally getting it.
    A large majority of Americans know a great deal about credit scores, according to a national survey by the Consumer Federation of America and VantageScore Solutions, which produces the Vantage Score credit score.
    Many know that missed payments, personal bankruptcy and high credit card balances are factors used to calculate credit scores. People also know they have more than one generic credit score.
    Generic credit scores are used by many types of lenders and businesses to determine general credit risk. They differ from custom credit scores, which are developed for individual lenders. VantageScore and the widely used FICO score are examples of generic credit scores.
    "There are more generic scores out there than there were a year ago," said Stephen Brobeck, executive director of the consumer federation. "Something that they really need to understand is that the lender scores are the most important, but even then, it's not just the level of the score, but it's how the lender treats that score."
    Despite the survey's encouraging findings, consumers still need to learn much more about credit scores.
    "Most troubling is that only 42 percent know that a credit score measures the risk of not repaying a loan rather than factors such as knowledge of, or attitude to, consumer credit," Brobeck said. "Consumers should be aware that they can take steps to reduce this risk and improve their scores, most importantly, by making all loan payments on time."
    The national telephone survey was undertaken in April, using a representative sample of 1,004 adults. The margin of error is plus or minus 3 percentage points.
    If you want to test your knowledge of credit scores, take the free online credit score quiz at creditscorequiz.org.
    One question on the quiz that might stump many consumers: When will multiple inquiries about a mortgage or auto loan lower your FICO or VantageScore credit score?
    The answer is: never during a one- to two-week window. Inquiries during this period are treated as one inquiry by FICO and VantageScore credit scoring models, and usually by other scoring models. So time your credit inquiries for that safe period.
    When Credit.com asked consumers in a separate survey last month what steps they planned to take to improve their credit, many said they would pay down their credit card debt.
    "That's a great thing, but closing accounts is the second most popular answer, and that's not likely to help," said Gerri Detweiler, director of consumer education at Credit.com. "It might hurt your score."
    That's because closing a credit card account can raise your utilization ratio, which compares the amount of credit you're using to the amount of credit available to you. This is especially critical if you carry high balances.
    Experts say the ratio is more important than how much available credit you have. A low balance-to-limit ratio is good.
    What's more, if you close an older account, that could hurt your credit score because you benefit from having older accounts with a good history.
    "The good news is a lot more people are seeing their scores," Detweiler said. "They're much more involved in their credit, but there is room for improvement for some."
    Pamela Yip is a personal finance columnist for the Dallas Morning News. Email her at pyip@dallasnews.com.
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