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Parents flunk credit score quiz

by Broderick Perkins

(05/21/2010) Parents are failing to make the grade on credit scores and that could put their kids at risk when their kids become borrowers.

When asked, a surprisingly high number of American parents couldn't list the top financial actions that can most hurt credit scores. That credit information void could be passed onto their kids, according to a recent survey by online bank ING Direct.

In March, ING commissioned Harris Interactive to conduct an online survey of 1,042 parents of children age 17 years and younger.

Only a handful, five, that's right, less than one half of 1 percent of American mothers and fathers were able to correctly identify all of the top ten financial behaviors that impact credit scores.

While less than one percent of parents identified all ten behaviors, only six percent answered nine correct; 11 percent answered eight correct; 14 percent answered seven correct; and 17 percent answered six correct.

A credit score -- virtually always considered by lenders when you apply for a mortgage, credit card, car loan, other credit, even insurance and other financial accounts -- is a numerical rendition of your creditworthiness.

Scores range from about 300 to about 850. The higher the number the more likely you are to get credit and the more likely you are to get cheap credit. Your score should be at 760 or above to land the best interest rate, according to FICO, a leading credit scoring system provider.

The survey also found that nearly half (46 percent) of all parents could only identify between one and five financial behaviors that negatively affect credit scores.

Parents consistently missed "keeping a small credit card balance each month" as an action that may adversely affect credit scores. Only 9 percent of parents scored correctly.

Only about a third (36 percent) of parents recognized that opening new credit card accounts could lower your credit score.

"Younger children constantly look to their parents for advice, especially when it comes to money," said Arkadi Kuhlmann, CEO of ING Direct.

"If parents can't pinpoint financial behaviors that negatively impact their credit scores, they may be unconsciously setting a poor financial example for their children," Kuhlmann added.

So what are adverse financial behaviors that can depress credit scores?

Surveyed parents were asked to review a list of 19 financial behaviors and select those behaviors that would negatively impact credit scores. Ten of the 19 behaviors were the correct answers.

Here are ten behaviors, including the percentage of parents who correctly identified the behavior.

• Keeping a small credit card balance each month (9 percent).
• Lowering your credit limit (18 percent).
• Closing old credit card accounts (31 percent).
• Opening new credit card accounts (36 percent).
• Never having a credit card (51 percent).
• Having a short history of credit (56 percent).
• Exceeding a credit limit (71 percent).
• Having a lot of debt (80 percent).
• Paying a mortgage late (81 percent).
• Paying bills late (85 percent).

"Parents could be overlooking some significant cost savings like lower interest rates that result by keeping their credit scores in check," Kuhlmann said.

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