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Credit score confusion: What you don't know could hurt you

Credit scores are critically important. They determine your ability to obtain credit and how much you will pay for it. 

A bad score could prevent you from getting a credit card or renting an apartment. It can increase the cost of services, such as cell phone, electric and cable.

And yet, a lot of people don’t know much about credit scores.

A new survey done by the Consumer Federation of America and VantageScore Solutions finds that:

  • Two-fifths do not know credit card issuers and mortgage lenders use credit scores to decide about granting credit and pricing.
    Two-fifths incorrectly believe personal characteristics such as age and marital status are used in calculating credit scores.
  •  Between one-quarter and one-third do not know when lenders are required to inform them of the credit score used in their lending decision – after they apply for a mortgage, when they are turned down for a loan and when they don’t receive the best price or terms.
  •  More than one quarter do not know the key ways to raise or maintain their scores – keeping credit card balances low and not applying for several cards at the same time.
  •  More than one-third incorrectly believe credit repair agencies are always or usually helpful in correcting credit report errors and improving scores. They are not.

How can you raise your credit score?
To improve your credit score, do things that show lenders you are trustworthy and a low risk. That includes:

  • Pay your bills on time every month.
  • Keep a low balance on your credit and charge cards.
  • Pay down debt rather than just move it around.
  •  Don’t open new credit accounts rapidly.

You should check each of your three credit reports for errors at least once a year. It’s free. Go to www.annualcreditreport.com.

To help you learn more about credit scores, the Consumer Federation of America and VantageScore Solutions have updated their interactive  quiz Credit Score Quiz (English) or Credit Score Quiz (Spanish).

During a TODAY Money web chat on Wednesday, John Ulzheimer, president of consumer information at SmartCredit.com explained the ins and outs of credit reports and answered readers questions. You can read the full chat: