Credit scores have never been more important - or misunderstood - by the American consumer. That's the view of Keith Reynolds, vice president of lending and business services for CEFCU, a credit union with more than 230,000 members, most of those in central Illinois.

Credit scores have never been more important - or misunderstood - by the American consumer.


That's the view of Keith Reynolds, vice president of lending and business services for CEFCU, a credit union with more than 230,000 members, most of those in central Illinois.


"Only about half the consumers understand that a credit score is a risk measurement. It measures risk as a specific snapshot in time," he said.


But, in the aftermath of the nation's subprime/foreclosure problem, those snapshots carry a lot of weight. "Credit scores have never been more important," said Eric Schmidt, a mortgage banker at Busey Bank.


"In the past nine months, they've become critical as banks tighten up loan requirements," he said.


TV commercials now urge consumers to find out their credit scores to see if those scores need improvement, said CEFCU's Reynolds.


One of the biggest misconceptions is that a credit score simply measures one's payment history, he said. "Payment history makes up 35 percent of the score with recent delinquencies (in paying of bills) given more weight," he said.


One missed payment won't drop a score by 100 points, said Reynolds, noting that credit reports are adjustable. "(A delinquent account) won't be removed from your report but paying it off will help (your score)," he said.


The second-biggest factor in determining a credit report is capacity - how much you owe, said Reynolds. "How close you are to your limit on your credit cards is part of this," he said.


"People who file bankruptcy will max out their (credit) cards before they get there," said Reynolds. In the aftermath of legislation in 2005 that made it more difficult - and more expensive - to declare bankruptcy, the number of bankruptcies are up nationally by 50 percent in 2008 over last year, he said.


"We're still far below where we were (in the number of bankruptcies filed) in 2004 and 2005," said Reynolds.


A third component, accounting for 15 percent of a credit report, is the length of time a person has had credit, he said.


A consumer's new credit history accounts for 10 percent of the report but Reynolds said consumers should use caution when acquiring credit cards. "It serves no purpose to load yourself up with credit limits you don't need," he said. "If you get six (credit) cards at Christmas while shopping at different stores and save $37, it may cost you more than that on your credit score."


As for the average credit report, the average score is 680 based on nine credit cards and four installment loans, he said. The three top companies that issue reports are Equifax, Experian and TransUnion, said Reynolds.


"You have the right to get a copy of your own credit report as well as a copy of who's received your report for the past two years," he said.


Steve Tarter can be reached at (309) 686-3260 or starter@pjstar.com.