Steady decline in credit score knowledge.
A topic we cover in this newsletter often is that credit scores and credit scoring models have always been labeled a black box. As an industry, we need to double down on consumer education because consumers who are properly educated are empowered to make better decisions.
This is one of the reasons we value our partnership with Consumer Federation of America (CFA), one of the largest and most influential consumer advocates in the country.
Along with CFA, we survey consumers annually to understand what they understand and do not understand about credit scoring — and how important it is to their financial health.
Detailed results of this year’s survey are included in this month’s newsletter, but, to put it mildly, the historical results of a comparison of surveys from year prior leaves much to be desired. From a knowledge standpoint, we are going in the wrong direction.
Baseline knowledge about credit scoring has steadily declined over the past eight years.
Our mission is more critical now than ever before. Millennials are now the largest generation by population size, according to the Pew Institute, and have a lighter footprint in credit activity compared to older workforce age groups. Fewer than 60% of Millennials are regular users of credit. Lenders, by the way, are going to have to become more comfortable lending to this generation with less credit activity than prior generations without subordinating prudent lending standards.
We must also recognize that low-to-moderate income consumers were disproportionately impacted by the Great Recession and many still find themselves with credit health challenges.
Indeed, in this country, approximately 42% of consumers have scores below Prime. A healthy economy has contributed to an overall improvement in average consumer credit scores, but many families and individuals have lingering financial hurdles to deal with.
Part of the solution is to provide educational opportunities so that consumers can take the right actions, whether they are new to credit or trying to work back from a low credit score.
That’s why we continue to believe in tools like CreditScoreQuiz.org. Tens of thousands have benefited from taking the quiz but we’ve only reached a small percentage of the overall population.
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As I mentioned, please read on for survey results, as well as articles about VantageScore 4.0, credit scores and dating, and a Q&A with Gerri Detweiler, a personal finance expert who specializes in helping small business owners achieve their entrepreneurial dreams.