A recent study, jointly conducted by the Consumer Federation of America and Washington Mutual Bank, revealed that although knowledge of credit scores has improved slightly among consumers, many still remain misinformed and confused. Why? Not all credit scores are created equal.

The study revealed that 31% of consumers knew that lenders use credit scores to assess risk, 21% said they thought the score represents their financial resources to repay loans, and 41% didn't know that using a credit card's entire limit lowers their score, reports SmartMoney.com. Many consumers believed marital status, residency, and education were factors in their credit score.

Your credit score--that three-digit number summarizing your credit history--is a critical factor in a lender's decision to grant you credit and at what rate. While lenders are the primary users of credit scores, some employers, landlords, and insurance companies also use them to evaluate applicants.

Therein lies the problem. If you purchase your credit score from Fair Isaac Corp. at FICO.com, you get a FICO Score. If you request a free TransUnion or Experian credit report from annualcreditreport.com and also purchase your credit score from that Web site, you'll get a VantageScore. And if you use any of these sites--experian.com, freecreditreport.com, consumerinfo.com, creditexpert.com, or familysecure.com--you'll get a PLUS Score, which typically isn't used by lenders.

If you're not confused yet, try this: Different credit scores have different numbering systems. For example, a score of 800 from FICO is considered very good, while the same VantageScore would be considered a "C," or just average.

If you can't remember all that, then remember this: Most lenders, including Leominster Credit Union, use the FICO Score.

The best advice is to ask any potential lender which credit score it uses to determine your creditworthiness. Also, a clean credit history will boost all your credit scores.

How to Improve Your FICO Credit Score

  • Payment history (35% of score)
    Pay all bills on time
  • Amounts owed to creditors (30%)
    Don't owe a lot of money to a lot of people
  • Length of credit history (15%)
    Keep fewer cards for a longer period of time
  • New credit (10%)
    Don't increase debt obligations right before applying for a mortgage
  • Types of credit currently in use (10%)
    Maintain a mix of credit - mortgage, credit card, car loan, for example
Finally, here are extra tips that will help to clean up your credit report:

  • Keep each account balance at less than 25% of your available credit limit
  • Don't close old accounts, or open a flurry of new accounts right before you apply for credit
  • Don't co-sign for another person with bad, or no credit

If you still have questions about credit scores, come talk to an LCU representative. We can help you sort out the facts.