Lew Sichelman

When it comes to credit scores, low-income folks have far less knowledge, according to the results of a recent quiz developed by the Consumer Federation of America and VantageScore. But even high-income respondents didn’t have all the answers. 

These days, everyone from your local utility to your cellphone carrier bases decisions on credit scores, at least in part. But they are particularly key for mortgage lenders. 

The difference between a high score and a low one can mean the difference between being approved or rejected for financing. And even if you do pass muster, borrowers with lower scores will usually pay more than those with higher ones.  

Says the CFA’s Steve Brobeck: “A lack of knowledge could be costly.” 

Test your understanding by taking this shortened version of the CFA-VS quiz. The answers follow. 

Questions 

1. Which of the following does a credit score mainly indicate? A. Knowledge of consumer credit. B. Attitude toward consumer credit. C. Amount of consumer debt. D. Risk of not repaying the loan. E. Financial resources to pay back the loan.
2. Which of these groupings contains the three factors that are all used to calculate a credit score? A.A person’s age,missed loan payments and marital status. B. Missed loan payments, high balances on credit cards and ethnic origin. C. Marital status, high balances and personal bankruptcy. D. A person’s age, high balances and ethnic origin. E. Missed loan payments, high balances and bankruptcy. 
3. Who collects the information on which credit scores are most frequently based? A. FICO andVantageScoreSolutions. B. Three main credit bureaus: Experian, Equifax and TransUnion. C. Individual lenders. D. The federal government. E. All of the above. 
4. Does each consumer have just one credit score? A. Yes. B. No.
5. Which of the following is usually a good generic credit score? A. 400. B. 500. C. 600. D. 700.
6. When are lenders required to inform borrowers of the score used in their decisions? A. After a consumer applies for a mortgage. B. On all consumer loans, when you don’t receive the best terms and rates. C. Whenever you are turned down. D. All of these. E. None of these.
7. Which of the following helps raise a low score or maintain a high one? A. Make all loan payments on time. B. Keep credit card balances under 25percentof the credit limit. C. Avoid opening several credit cards at the same time. D. All of these. E. None of these. 
8. When will multiple inquiries about obtaining a loan lower your FICO orVantageScorecredit score? A. Each time you make an inquiry. B. Only when you make at least five. C. Never, if the inquiries occur during a one- to two-week window. D. Never. 
9. How important is it to check the accuracy of your credit reports? A. Very. B. Somewhat. C. Not very.
10. When you cannot resolve a complaint about your credit report or score, which of these federal agencies is best suited to help you? A. Federal Reserve Board. B. Federal Trade Commission. C. Consumer Financial Protection Bureau. D. Department of Justice.

Answers 

1. D. Credit scores predict the probability that you will pay back a loan by analyzing your history of borrowing money and paying your bills, as summarized in your credit report. While factors such as savings and income may influence repayment risk, the models that produce scores only consider credit report contents.
2. E. Each of these three factors is closely related to the risk of not repaying a loan, whereas age, ethnicity and marital status are not.
3. B. Three major credit agencies collect the information and make it available in credit reports. FICO andVantageScoreSolutions, among others, then use these reports to calculate scores. 
4. B. Consumers have many credit scores. There are the generic scores developed by the three national credit bureaus, as well as scores from individual lenders and scores specific to the mortgage industry.
5. D. The most common scoring scale range is 300-850. A score of 700 or more usually indicates a low credit risk. Scores below the mid-600s often indicate some degree of risk. Those with lower scores than that are much more likely to be denied credit or charged more.
6. D. Federal law requires disclosures in all these scenarios.
7. D. These steps will help raise a low score, though it usually takes months to turn things around. Conversely, high scores can drop considerably–and quickly – if even one mortgage payment is missed. 
8. C. Multiple inquiries during this period are usually treated as a single inquiry.
9. A. Credit reports sometimes contain inaccurate information. The three main bureaus are required by federal law to provide a free copy of your credit report once a year upon request: Visit annualcreditreport.com or call 877-322-8228.
10. C. The CFPB helps consumers resolve many types of complaints about credit reports and credit scores.

Lew Sichelman has been covering real estate for more than 50 years. He is a regular contributor to numerous shelter magazines and housing and housing-finance industry publications. Readers can contact him at lsichelman@aol.com.