The sixth annual credit score survey from the Consumer Federation of America (CFA) and VantageScore Solutions, LLC, shows that less than a quarter of Americans understand bad credit implications that result from a low credit score.
Credit plays an important role in the lives of consumers, and this study serves to highlight what consumers know - and don't know - about credit and how it works.
The findings of the CFA/VantageScore study are based on a telephone survey that was conducted by ORC International in mid-April of this year. They interviewed a representative sample of 1005 adult Americans via landline and cellphone, with a margin of error of plus or minus three percentage points.
First, the good news: over 80% of consumers knew the basics about credit scores.
- 88% knew that credit scores are used by mortgage lenders, while 87% knew credit scores were used by credit card issuers.
- When it comes to the key factors used to calculate credit scores, 91% knew missed payments were a major factor, while 86% understood that personal bankruptcy was another, and 85% realized that high credit card balances would affect their scores.
- Only 12% believed that ethnic origin was used in determining one's credit score.
- 81% knew that 700 is a good credit score.
While it is a relief to know that the basics are fairly well understood, the majority of consumers throughout the United States could benefit by knowing more.
The Cost of Low Credit Scores and Other Concerning Information
What is worrisome is how many people underestimate the financial implications of a low credit score. According to the CFA/VantageScore survey, only 22% know that a low credit score, compared to a high score, typically increases the cost of a $20,000, 60-month auto loan by more than $5,000.
Other data highlighted that a significant minority of consumers lack knowledge of how credit scores are utilized by non-creditors. Of those surveyed:
- 47% were unaware that electric utility companies may use credit scores.
- 34% didn't know that home insurers may use credit scores.
- 32% didn't know that cell phone providers access their credit scores.
- 30% did not realize that landlords check their tenant's credit scores.
Also, 42% believed that marital status and age were factors in credit scoring. These two factors do not play a role in determining someone's credit score - it is, in fact, determined by payment history, the amount of outstanding balances, usage, how long accounts have been active and the number of collections, judgments and other negative information someone has on their credit report.
And only 51% of consumers knew that lenders were required to inform them of their use of credit scores:
- After applying for a mortgage.
- If they did not receive the best terms on a consumer loan.
- Any time a request for credit is turned down.
All consumers are potential borrowers and will likely need to obtain financing at some point in their lives, typically when buying a car or purchasing a home. That's why it is important to know everything possible about how credit works.
Getting the Information You Need
Staying on top of your credit is important. And you can do that by practicing the following:
- Request your credit report from each of the three major credit reporting agencies (TransUnion, Equifax and Experian). You can obtain one report free of charge from each agency annually through annualcreditreport.com. Use these reports to see where you can improve your credit habits as well as find errors that may be lowering your score. These reports will not contain your scores. For that, you'll need to pay a small fee.
- Use online resources for more constant credit monitoring. There are reliable websites you can use to actively track your credit on a more frequent basis. The cost for this kind of service varies - some are even free of charge.
Building Credit Through an Auto Loan
If you need to build a credit history or are in need of repairing damaged credit, one great way to do it is through an auto loan. Drivers Lane has a nationwide network of car dealers that have the resources to help those with no credit or bad credit get financed for a car loan. All you need to do is complete the fast, secure and obligation-free online application. From there, we will connect you with a dealer that will do everything possible to get you back on the road. Start today.