Money Talks, So Should You

What we don't know about our own credit scores

Brian O'Connell
by Brian O'Connell, MainStreet contributor

Almost half of Americans don’t know their own credit score, which in the eyes of consumer advocates is roughly akin to not knowing your own Social Security number or cellphone number.

A study last year of 2,215 consumers by CoupinCabin.com reveals that 47 percent of U.S. adults can’t pin down their credit score, with 60 percent of Americans aged 18-34 in the dark on the No. 1 benchmark used by creditors and lenders to judge your financial health.

But that’s not the half of it. U.S. consumers are lacking basic financial credit knowledge on a wide range of categories that can hurt them on such key issues as taking out a student loan, getting a credit card or buying a home mortgage.

VantageScore, a Stamford, Conn., credit scoring model company, canvassed 1,000 U.S. adults that measured their knowledge of credit scores on a wide range of topics. (The Consumer Federation of America co-sponsored the survey.)

The results are depressing for a consumer base that needs to know all it can about credit scores and how credit rating agencies calculate their financial risk for creditors.

According to VantageScore:

  • 38 percent of credit card users and 40 percent of mortgage customers didn’t know that credit card firms and mortgage lenders use credit scores to make lending decisions.
     
  • About 40 percent of respondents think that their age and marital status are factors weighed by lenders in making credit decisions.
     
  • Up to 40 percent of consumers don’t know that co-signing a college loan can hurt the co-signee’s credit score. Even one late payment can weaken your credit score, VantageScore reports.
     
  • Up to 35 percent of Americans don’t know that lenders are required to tell them if a request for credit has been turned down, and what credit score determinations were used in the decision.
     
  • About 26 percent of U.S. consumers don’t know that keeping credit card balances low improves credit scores. And 28 percent aren’t aware that applying for multiple credit cards also helps their credit.

READ: Should I tell a new date my credit score?

Executives at VantageScore and the CFA were left shaking their heads over the lack of knowledge among U.S. consumers.

“Credit scores have become so influential in the lives of most consumers that tens of millions are severely disadvantaged by their lack of knowledge about these scores,” notes Stephen Brobeck, CFA’s executive director. “Low credit scores will often cost car buyers more than $5,000 in additional finance charges and cost home purchasers tens of thousands of dollars in additional mortgage loan costs. And low scores are likely to limit consumer access to, and increase the cost of, services such as cellphone service, electric service and rental housing.”

If you don’t know your credit score, the chances are decent other financial responsibilities are going by the wayside, too.

"Misperceptions about credit scores are extremely concerning,” says Barrett Burns, president and CEO of VantageScore Solutions. “People who fail to understand exactly what can impact their score have little incentive to manage the real things that truly do make a difference, such things as paying bills on time, keeping credit card balances low and not taking out unnecessary loans.”

The VantageScore/CFA survey isn’t a pretty one for consumers, but there is hope. The companies have come up with a quiz designed to improve consumer knowledge on credit.

Find it here or here.

 

Brian O’Connell has 15 years of experience covering business news and trends, particularly in the financial, health care and career management sectors. He has written 14 books and appeared on CNN, Fox News, CNBC, C-Span, Bloomberg, CBS Radio and other media outlets and in such publications as The Wall Street Journal and The Street.com. He is a former Wall Street bond trader.