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Americans Getting Smarter About Credit

May 15, 2012 by  
Filed under Blogs, Credit Score

By: Gerri Detweiler

Credit Score

If it seems like everyone’s talking about credit scores these days, it’s probably not your imagination. Consumers appear to be getting smarter about credit scores. At least that’s what the results of a survey of 1000 consumers by the Consumer Federation of America (CFA) and VantageScore Solutions show. Compared to a year ago, a larger percentage of consumers correctly answered a variety of questions about credit scores. But there were a few key concepts that tripped up many respondents.

Most of those surveyed did well on the basics. They knew that:

  • Mortgage lenders and credit card issuers use credit scores (94 percent and 90 percent correct respectively). And many other service providers also use these scores — landlords, home insurers, and cell phone companies (73 percent, 71 percent, and 66 percent correct respectively).
  • The three main credit bureaus — Experian, Equifax, and TransUnion — collect the information on which credit scores are frequently based (75 percent correct) and that it is very important for consumers to review their credit reports with those agencies to learn if they are accurate. (82 percent correct).
  • Consumers have more than one generic credit score (78 percent).
  • The following types of information influence scores: missed payments, personal bankruptcy, and high credit card balances (94 percent, 90 percent, and 89 percent correct respectively). And that making all loan payments on time, keeping credit card balances under 25 percent of credit limits, and not opening several credit card accounts at the same time help raise a low score or maintain a high one (97 percent, 85 percent, and 83 percent correct respectively).

So What’s The Problem?

CFA’s Executive Director Stephen Brobeck said he has “have never seen such improvement from one year to the next,” in the organization’s consumer knowledge surveys. But there was still some basic information about credit scores that many didn’t understand. In particular, consumers didn’t seem to grasp how expensive poor credit scores can be. For example, fewer than one in three were aware that, on a $20,000, 60-month auto loan, a borrower with a low credit score is likely to pay at least $5,000 more than a borrower with a high credit score.

While credit scores don’t take factors like age, marital status or race into account, just over half thought a person’s age (56 percent) and marital status (54 percent) are factors used to calculate credit scores, and 21 percent incorrectly believe that ethnic origin is a factor.

Consumers are also confused about how inquiries affect credit scores. Just 9 percent correctly knew that “multiple inquiries during a 1-2 week window” will not lower scores. In reality, when it comes to FICO scores, recent inquiries within a short period of time for mortgage, auto or student loans don’t affect scores, and going back in time, multiple inquiries for the same type of loan in those categories are treated as a single inquiry. The exact time period varies, depending on which scoring model is used. Similarly, multiple inquiries within a 1-2 week window won’t lower VantageScore scores.

The Smartest Consumers Know Their Scores

Checking one’s credit scores apparently does help cut through the confusion; those who had seen their scores recently were more likely to correctly answer the survey questions. But fewer than half of those surveyed (42 percent) had received at least one of their credit scores during the past year. Of those who did see their scores, the top sources were a website (49 percent) and a mortgage lender (45 percent).

Source: Credit.com (http://s.tt/1bTdm)

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One Comment on "Americans Getting Smarter About Credit"

  1. Mike on Fri, 8th Jun 2012 11:20 AM 

    Congrats on getting your first card and, more imlratontpy,
    on caring enough to ask about the impact of a $1600 purchase.
    Are you considering applying for credit any time soon?If not,
    don’t worry about the impact to your score. In fact, consider,
    don’t worry, about the amount of interest you’ll pay for delaying
    full payment of the $1600 purchase. That is, you indicated it will
    take you 2-3 months to pay it off. Unfortunately, the hit is much
    more than the one point suggested by a different poster. Thirty
    (30%) percent of your FICO comes from amounts owed. Not a
    problem unless you’re considering new credit. If so, hold off.
    Get a credit history with on-time monthly payments. Show
    responsibility with the card you have. Don’t laugh..but really
    nurture it. Develop a long-term credit relationship and you
    will benefit. Hope this helps, Best, Mike

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