Credit score knowledge improves

A poor credit score can cost a consumer much more than the best interest rate on a loan. Landlords, home insurers, cell phone companies, and utilities can use credit scores to determine how risky a customer is, and what to charge them.

According to a new survey by the Consumer Federation of America, more consumers understand credit scoring basics today than in 2004, when the consumer agency also conducted a survey on the subject.

The study found 71 percent of respondents surveyed earlier this year correctly answered that a credit score mainly indicates the "risk of not repaying a loan." Just 34 percent of those surveyed in 2004 responded correctly.

When asked whether the following used credit scores when making decisions about a consumer, this is the percentage of survey respondents who answered correctly:

2004 2011 Mortgage Lender 81% 86% Credit Card Issuer 77% 85% Cell phone co. 50% 60% Landlord 48% 64% Home Insurer 47% 64% Electric Utility 30% 45% But the gains in knowledge are not enough, especially as the credit scoring landscape has gotten far more confusing.

Consider this: there's the FICO credit score, created by Minneapolis-based Fair Isaac, long the standard used by most financial services firms and lenders to assess risk. The three credit bureaus - Equifax, Experian and Trans Union - sell their own scores. Some companies create their own proprietary scoring models. Some websites give a version away for free, or estimate scores based on data users provide. Then there's VantageScore Solutions, which came out its VantageScore credit score in 2006. The company partnered with the CFA to put out this survey.

That's a lot of scores, but there are more. Companies have also created other scoring tools for assessing risk with names like the Credit Capacity Index and the Deposit Behavior Score (both Fair Isaac products). Star Tribune banking reporter Chris Serres wrote about the latter in January.

To help inform consumers, and show them the gaps in their knowledge, the CFA and VantageScore created www.creditscorequiz.org, a consumer education website that lets you take the quiz and learn more about scoring.

Consumer Federation of America executive director Stephen Brobeck spoke to reporters on Monday about the new survey. He said that with the proliferation of different credit scores, it's critical that consumers not only know their score, but also know the benchmark of that score.

For example, FICO scores run on a scale of 300 to 850, while VantageScores are calculated within a 501 to 990 range. "A 700 score may be either a good score or only a fair score depending on the scoring system," he explained.