Credit score knowledge dips in last eight year, survey shows

Consumer knowledge about credit scores is at the lowest level in the past eight years, according to the ninth annual credit score survey released Monday by the Consumer Federation of America and Vantage Score Solutions. On most questions, correct scores declined by more than 10 percentage points, and sometimes by more than 20.  For example:

• 78 percent of respondents in 2012, but only 62 percent in 2019, correctly indicated that people have more than one credit score.
• 85 percent in 2012, but only 66 percent in 2019, correctly answered that keeping a low credit card balance helps raise a low credit score or maintain a high one.

However, in the same period, the number of respondents who said they considered their knowledge of credit scores excellent or good rose from 54 percent to 60 percent.

“Consumers know less about credit scores but think they know more,” said Stephen Brobeck, a federation senior fellow. “Taking our online credit score quiz provides an easy way for consumers to update their credit score knowledge,” Brobeck said.

More than 230,000 individuals have taken the Credit Score Quiz, developed and maintained by the federation and VantageScore.

Consumer knowledge levels may have deteriorated because of improvements in the overall economy and consumers’ financial condition. In 2012, large numbers of Americans faced challenging credit card and mortgage debts, so consumers may have been especially concerned about credit scores. Since then, as the nation’s economy and family finances recovered, and as consumers reduced credit card and mortgage debts, consumers may have thought that it was less important to fully understand credit scores. Reports of increases in average credit scores nationwide may also have lessened people’s feelings of financial vulnerability and the need to fully learn about their scores and its impact.

Despite overall rising score levels – now averaging 680, according to Experian – a large minority of consumers have fair or poor scores, below 670.  Low scores can especially harm these people by:

• Denying them access to needed credit.
• Increasing the costs of consumer and mortgage credit they can obtain. Subprime auto loans will likely cost several thousand dollars more, and subprime mortgage loans can cost more than $10,000 more, compared to conventional loans.
• Increasing deposits required by utilities and cell phone companies to obtain service.

Low credit scores also are an indicator that people may have difficulty obtaining a job. While credit scores themselves aren’t used by employers, the credit reports the scores are based on frequently are.

“Those with low credit scores should be aware that they are at risk not only for paying higher costs for credit and utility services, but may also struggle to obtain a good job with which to afford those higher costs,” said Brobeck.

While consumers’ knowledge of their actual credit scores has declined overall, the latest survey shows many consumers did correctly answer key knowledge questions related to important facts:

• Mortgage lenders and credit card issuers use credit scores, 83 percent and 82 percent respectively.
• Missed payments are used in calculating credit scores, 86 percent.
• Making all loan payments on time helps a consumer raise a low credit score or maintain a high one, 87 percent.

However, significant minorities of respondents didn’t know other key facts, for example:

• Cell phone companies might use credit scores in pricing services, 41 percent.
• Borrowing from a 401k retirement account or paying a parking ticket late won’t lower your credit scores, 30 percent and 22 percent respectively.
• Opening several credit card accounts at the same time might lower scores, 38 percent.
• Frequently checking credit scores won’t lower their scores, 38 percent.
• Checking the accuracy of one’s credit reports is important, 33 percent. Lenders may have provided inaccurate information or failed to supply accurate information to credit bureaus. As a result, the bureaus may have made mistakes such as adding information to the wrong file of a person with the same name.

Consumers can raise their credit scores or maintain high scores by:

• Consistently making loan payments on time every month. A late payment may lower one’s credit scores by dozens of points.
• Using a small portion of the credit available on a credit card. In general, the higher the percentage of credit line that is drawn down, the lower one’s credit scores.
• Paying down credit card debt rather than just shifting it to another credit card or to a home equity loan.
• Regularly checking one’s credit reports to make sure they are error-free. This can be done for free annually by going to Annual Credit Repot.com or by calling 800-322-8228.