Posted by Elisabeth Leamy, Tue May 22 2012, 01:59am

The Consumer Federation of America, CFA, has created a fascinating, fantastic quiz about credit scores –what they are, what factors into them, what lowers them and so on

The Consumer Federation of America, CFA, has created a fascinating, fantastic quiz about credit scores –what they are, what factors into them, what lowers them and so on. It's worth taking, because as I have often preached here, credit costs money –big money–and there are two ways to cut that cost: use less credit and get credit for less. The way you get credit for less is by maintaining a high credit score and if you don't understand how they work, that's hard to do.

Spoiler alert! I encourage you to Take the quiz before reading any further, A) because it's very well done and because I'm about to reveal some of the right and wrong answers below.

22,623 people had taken the quiz by the time I did and the great news is that 21,570 of them passed it! They knew the basics, like the fact that credit scoring is used when you apply for any kind of loan –from a mortgage to a credit card-- and that paying bills late lowers your score. On the other hand, getting 70 percent of the answers right counted as passing, and you're going to need to know more than that about credit scores in order to have a tip top one! There were some troubling misconceptions people had about credit scores that are worth discussing.

For example, 10 percent of participants believed that student loans are not counted toward credit scores. Yikes! That's a problem, especially since a report earlier this year from the Federal Reserve Bank of New York showed that Americans now have more student loan debt than credit card debt. If you are one of them and you are paying late or not paying at all because you don't think it will hurt your credit score, wake up!

And then there was this question: "On a $20,000, 60-month auto loan, about how much more would a borrower with a low credit score typically pay than a borrower with a good score?" 4 percent of respondents said less than a thousand dollars. 16 percent thought the cost of having a poor score would be $1,000 to $3,000 and 28% said $3,000 to $5,000. The correct answer? The person with the low score would pay a penalty of more than $5,000 on that auto loan, compared to the person with a high score. THIS is why credit scores matter! Having a bad one costs you money!

I was also saddened to see that significant groups of folks thought credit scores were influenced by age, marital status and ethnicity. That is just not true. One good thing about credit scores is that they are all about numbers. They don't discriminate.

Perhaps most alarming, 15 percent of respondents believed that credit repair companies were "always" helpful in improving people's credit scores. Another 18 percent said they "usually" help. Whoa! The Federal Trade Commission, the nation's consumer watchdog, says it has never encountered a legitimate credit repair company! They are usually fly-by-night outfits that charge a huge fee up front, fail to help, and then disappear. This quiz question made me a little crazy because I answered that they are "never" helpful and CFA counted that as a wrong answer. Perhaps that's because there is one narrow exception. So-called credit repair companies are notoriously scammy. But there are "credit re-scoring" firms, accessible only through lenders, that can help clear up legitimate mistakes on credit reports that are dragging people's scores down. You can correct legitimate errors yourself. Credit rescoring companies can just do it a little faster because they have formal relationships with the big credit bureaus to do this.

There's one last misconception that's not a back breaker, but does bug me. 12 percent of quiz-takers thought obtaining your credit score was free. Not so. Several years ago Congress mandated that Americans should have free access to their credit REPORTS, and you can see yours here. Credit scores are derived from the information on credit reports, so it's important to get your free reports and make sure they're accurate, but credit scores themselves are not yet free. Most lenders use the original "FICO" Credit score developed by a company called Fair Isaac, so that is the one I always recommend checking. It costs $20 and you get it here.