WASHINGTON – July 11, 2008 – Americans can save billions of dollars annually on credit card and other interest payments by raising their credit scores, but many consumers still don’t know enough about the complex numerical values that represent their credit risk.

Although awareness of credit scores has increased in the past year, it remains poor, the Consumer Federation of America and Seattle-based bank Washington Mutual Inc. found in an annual survey released Thursday.

The scores, which generally range from 200 to 800, play an increasingly important role in consumers’ finances.

They are used by banks and insurance companies to determine rates for mortgage loans, credit cards, auto loans and other financing. Utilities, landlords and employers also are increasingly checking credit scores.

Washington Mutual estimates that consumers could reduce credit card finance charges by $105 annually if they boosted their credit scores by 30 points. If all consumers did so, total annual savings would reach $28 billion since financial institutions offer lower interest rates to consumers with better scores.

One way to raise a credit score is to avoid charging above the maximum limit on a credit card, or coming close to the limit, the study said.

But credit card issuers, including banks such as WaMu, have recently cut limits on many cards as financial institutions seek to reduce their credit risks. That can hurt credit scores because they are based partly on the amount a consumer has on a card compared to its overall limit.

If a consumer has charged $4,000 on a card with a $10,000 limit, their so-called “utilization rate” is 40 percent. But if a card issuer reduces the limit to $5,000, that bumps a consumer’s utilization rate up to 80 percent.

The Consumer Federation recommends credit card users keep their utilization rates below 50 percent, said Stephen Brobeck, executive director of the group.

Anthony Vuoto, president of WaMu’s card services unit, downplayed the impact of banks’ reduction of credit limits, saying it likely affects only a “small minority” of consumers who already have a “credit blemish” that caused the bank to lower the limits.

To improve their credit scores, consumers should also avoid opening multiple new accounts quickly, and pay off debt rather than moving it around, the study said.

Brobeck said the good news is that “most Americans know why credit scores rise and fall.”

Two-thirds of consumers know that paying off a large credit card balance improves credit scores, up from 62 percent in 2007, and almost 80 percent know that missing a monthly credit card payment reduces their score, compared with 71 percent, the survey found.

But less than a third of Americans understand that a credit score reflects the risk that a consumer won’t pay back a loan, the report said. Many Americans believe it reflects other factors, such as overall financial resources, and most also wrongly believe that demographic factors like income, age and education affect their score, Brobeck said.

Another positive sign is that 49 percent of Americans have obtained their credit score in the past two years, up from 42 percent in 2007, according to the survey of 1,000 adults nationwide.

The scores are compiled by three credit reporting bureaus – Equifax Inc., TransUnion LLC and Experian Group – and consumers can obtain a free copy of their credit report from all three once a year. But Americans must pay about $15 to see the actual scores.

Copyright 2008 The Associated Press, Christopher S. Rugaber (AP Business Writer). All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Questions, comments or suggestions on this article? Have a news tip? Send a letter to the editor to: Newseditor@floridarealtors.org.