Let’s start with the good news: Americans have come a long way in terms of monitoring their credit scores.
In fact, according to the seventh annual Credit Score Knowledge Survey,
jointly released by the Consumer Federation of America and VantageScore
Solutions, the percentage of people who said they obtained at least one
credit score in the past year has risen from 49% in 2014 to 56% in
2017.
The bad news? Consumers’ understanding of credit scores
hasn’t grown in tandem. Worse yet, the latest survey suggests their
knowledge has eroded.
Case in point: A significantly smaller
percentage of participants this year recognized that non-lenders use
credit scores to determine approval and pricing. Only 44% were aware
that electric utility companies consider credit scores, a precipitous
drop from 53% back in April 2016.
Meanwhile, 59% of this year’s
participants knew cell phone companies look at credit scores, a number
that seems pretty positive until you consider 68% of participants were
hip to that fact just last year.
Consumers also were also less aware year-over-year that:
- They have more than one credit score (down from 69% to 64%).
- Credit scores represent the risk of not repaying a loan (down from 43% to 38%).
- It’s
important to check the accuracy of their credit reports at the three
major credit reporting agencies (down from 73% to 68%). - A low credit score on a standard auto loan would increase costs by over $5,000 (down from 25% to 18%).
This
decline in knowledge comes at a time when free credit scores are
perhaps more widely available than ever before. They’re currently
accessible through multiple consumer education websites or online
marketplaces. Banks and credit card issuers are also increasingly
furnishing free credit scores to cardholders.
Perhaps most
disheartening, the survey results indicated that participants standing
to gain the most from a good credit score knew the least about how to
achieve one. For instance, only 55% of participants with household
incomes under $25,000 correctly identified three ways to raise a low
credit score, compared to 73% of participants in households with incomes
$100,000 and over.
Obviously, more must be done to help these
consumers learn about credit. Remember, a low score can cost someone
thousands of dollars each year in higher interest rates and service
fees.
As a starting point, consumers can build and maintain good
credit by making all of their loan payments on time, using only a small
portion of their credit card limits, paying down debt and regularly
checking their credit reports for errors. These reports are available
for free once every 12 months on AnnualCreditReport.com.
VantageScore
and CFA’s seventh annual credit score survey was conducted by ORC
International, which interviewed over 1,000 Americans nationwide via
cell phones and landlines.
Think you know more about credit than
the rest of the country? You can test your credit knowledge by taking
the CreditScoreQuiz.org challenge at http://creditscorequiz.org. The quiz is also available in Spanish at http://www.cuestionarioparaelpuntajedecredito.org.