At a news conference last month, VantageScore Solutions and the Consumer Federation of America (CFA), a nonprofit association of more than 250 consumer groups founded in 1968 to advance consumer interests through research, advocacy and education, announced results of their fourth annual survey measuring consumer knowledge of credit scoring.
The 19-question survey was administered by Opinion Research Corp. (ORC) to more than 1,000 representative American consumers. The survey follows three similar studies that VantageScore Solutions and CFA commissioned in 2010, 2011 and 2012. CFA Executive Director Stephen Brobeck spoke to numerous media outlets in the wake of the survey announcement, and he was gracious enough to offer one more interview to The Score. Here, he offers highlights of this year’s Credit Knowledge Survey.
What are the most encouraging findings in the 2014 Credit Knowledge Survey?
We were pleased to learn that a large majority of Americans have significant knowledge about credit scores:
- Well over four-fifths of respondents knew that credit card issuers (88 percent) and mortgage lenders (87 percent) might use credit scores in their lending decisions.
- Similarly high majorities of respondents knew that factors used to calculate credit scores include missed payments (92 percent), personal bankruptcy (87 percent) and high credit card balances (87 percent).
- Majorities of nearly three-quarters (72 percent of respondents for each question) knew consumers have more than one generic credit score; that the three main credit reporting companies (CRCs) – Experian, Equifax, and TransUnion – collect the information on which generic credit scores are based; and that it is very important to check the accuracy of one’s credit reports at all three CRCs.
- In response to a new question introduced for the 2014 survey, nearly three-quarters of respondents (74 percent) knew that the Consumer Financial Protection Bureau is the federal agency best suited to help consumers solve individual credit-scoring problems.
What are the most worrisome findings in this year’s survey results?
A particularly troubling finding was that 58 percent of respondents did not know what a credit score measures – i.e., the risk of not repaying a loan. Those respondents chose wrong alternate answers, including knowledge of and attitude toward consumer credit. Those who aren’t aware that scores relate to risk are less likely to know that by improving their debt payment record, they can improve their scores.
Furthermore, a huge majority of consumers, 93 percent, were unclear about the way a credit score is affected by multiple credit score inquiries from lenders considering applications for consumer or mortgage loans. Some of them correctly understood that inquiries can temporarily lower a credit score, but only 7 percent realized that scoring models created by VantageScore Solutions and FICO treat multiple inquiries within a one- to two-week window as a single event. Model designers chose that approach to accommodate “rate shopping” — applying to multiple lenders for any given loan in order to obtain the lowest interest rates they can get. Rate shopping can save thousands of dollars over the life of a 5-year car loan, and much more over the life of a mortgage.
What is the single most important things that consumers can do to raise their credit scores and then maintain high scores?
Make every auto loan, mortgage loan, and credit card payment on time every month until the loan is paid off.
Much of the discussion of this year’s survey findings has centered on adults under age 35, also known as the millennial generation. Why the focus on them?
Millenials are more likely than older Americans to be in the market for credit cards, auto loans, and often mortgage loans. Yet, our survey found that millennials know less about these scores than other adult Americans:
- Asked which of six types of businesses — ranging from credit card issuers to landlords to cell phone companies — might use credit scores, only 18 percent of millennials correctly identified all six, compared with 32 percent of older consumers.
- Less than half of millennials (47 percent) knew that a consumer’s age is not used in calculating credit scores, while more than 60 percent of those 45-64 years of age knew better.
- Less than two-thirds (65 percent) of millennials, but three-quarters (75 percent) of older adults, knew that the three main credit bureaus collect information on which credit scores are based.
- Half (50 percent) of millennials, but nearly three-fifths (59 percent) of those 45-64 years of age, knew that credit repair companies only occasionally or never are helpful in correcting credit report errors and improving credit scores.
Those who are 18-34 were also were more likely than older adults to have the mistaken belief that credit repair companies can always or usually be useful in correcting errors and improving scores. That is simply not the case.
Do you have any advice for millennials (or older adults) who want to improve their understanding of credit scoring?
An important reason for lower credit scoring knowledge among adults 18-34 appears to be that millennials are much less likely (49 percent) than other adult Americans (74 percent) to have ever obtained free copies of the credit reports upon which their credit scores are based.
All Consumer Knowledge surveys we’ve conducted show that consumers who have obtained their free credit reports are significantly more knowledgeable about credit than those who do not obtain reports. You can obtain free credit reports by visiting AnnualCreditReport.com or calling the toll-free number: 877-322-8228.
In addition, we encourage millennials and consumers of all generations to take the Credit Score Quiz, a free, interactive self-exam that CFA developed in partnership with VantageScore Solutions. Based on the questions in the Credit Knowledge Survey, the quiz helps consumers identify and fill in gaps in their understanding of credit and credit scoring. More than 47,000 consumers have taken the quiz and expanded their knowledge, and we urge everyone else to do the same.