Your credit score and it’s meaning need not be confusing

.By now, most American consumers are at least vaguely aware that their purchases, loans, bankruptcies and other major financial transactions are monitored by companies known as credit bureaus. They are also aware that these transactions are compiled by the bureaus into something called a credit report. Not nearly as many people realize that the credit report is often accompanied by something called a credit score, and even fewer know what, exactly, the credit score means.

Recent studies show that the public at large is fairly uninformed about the significance of credit reports and scores and how these items may influence their lives. This is serious, as they can affect one’s ability to buy a home or a car, obtain a credit card, or even get a job or a place to live.

Below are a few examples of frequent misunderstandings regarding financial records:

More than half of all Americans believe that married couples have a “joint credit score”; that is, they share a credit rating. In fact, records are sorted by Social Security number, and they are kept on individuals, not couples. This can have serious consequences, particularly in cases of divorce. Divorced couples often have confusion over who owes money for what, and the inability or unwillingness of one partner to pay debts can affect the credit score of the other partner, even after the marriage has been dissolved.

Three quarters of consumers believe that they can receive a copy of their score for free once a year. That would be nice, but the Federal law that allows consumers to receive a free credit report from each bureau annually does not mandate that the scores be included. The bureaus still require payment for that information, and so the free credit report does not include the FICO score.

Only half of consumers realize that there is no “universal score.” In fact, each bureau has their own model, which yields different results. The best way to keep track is to contact each bureau and obtain copies of that bureau’s information. That way, consumers can compare notes from one bureau to the other. That also helps identify errors, which should be corrected quickly.

It appears that those who know the least about how financial reporting works are those who are most likely to suffer from the lack of information. Studies showed a direct link between knowledge of how these things work and education and income. The more educated you are and the more you earn, the more likely you are to understand the process.

Still, the information is freely available, and anyone who is willing to take the time can benefit. The more you know about your financial history and what it means in your day to day life, the more likely you are to want to keep it clean.

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