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Americans don’t check credit scores, reports–poll

September 6, 2005

By Jonathan Stempel

NEW YORK (Reuters) – Many Americans don’t know the basics
about credit scores, and are not regularly checking their
credit reports for signs of fraud, a new survey shows.

The survey conducted on behalf of Capital One Financial
Corp., the No. 5 U.S. credit card issuer, and the nonprofit
Consumer Action was released less than a week after the
expansion of a federal law that lets consumers obtain free
credit reports up to three times a year.

“Lenders are increasingly using risk-based pricing to make
loans,” said Ken McEldowney, executive director of San
Francisco-based Consumer Action, in an interview. “If you don’t
find out your credit score, check your credit report and
correct mistakes, you’re going to be totally in the dark, and
run the risk of paying far higher interest rates on loans.”

Lenders use credit scores to gauge how likely consumers are
to pay their bills. The scores typically range from 300 to 850,
and are generated by a formula that incorporates such factors
as payment histories, debt owed and the frequency of credit
applications. Many mortgage lenders use scores computed by Fair
Isaac Corp., known as FICO scores.

According to the survey, two-thirds of Americans either did
not know that 700 is considered a good credit score, or guessed
wrong. The median U.S. FICO score is 723.

The survey also found that just 35.2 percent of Americans
check their credit report every year. Another 22.7 percent
check only when considering big purchases such as homes or
cars. And 23.3 percent never check their credit report.

The Fair and Accurate Credit Transactions Act lets
consumers receive one free credit report a year from each of
the three major credit bureaus: Equifax Inc.; Experian, a unit
of Britain’s GUS, and TransUnion LLC.

This provision was intended to help combat credit card
fraud and identity theft by making it easier and less expensive
for consumers to spot credit blemishes.

Raising credit scores can save money.

According to a Fair Isaac Web site (http://www.myfico.com),
a consumer with a 760 FICO score might pay $843 a month on a
$150,000 thirty-year, fixed-rate mortgage, equal to a 5.41
percent interest rate. But a consumer with a 659 FICO score
might pay $943 a month, equal to a 6.45 percent rate.

McEldowney said consumers who don’t have their credit
reports should get one from each bureau — some lenders report
to certain bureaus and not others — and then after a year
rotate among the bureaus every four months.

The reports don’t contain FICO scores, but it costs less
than $15 to get one, McEldowney said.

More details on credit reports are available on the Federal
Trade Commission’s Web site (http://www.ftc.gov).

Braun Research conducted the phone survey for Capital One
and Consumer Action of 1,002 men and women between July 1 and
July 5. The margin of error is plus or minus 3.1 percentage
points.




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