Individuals’ credit scores will play a significant role in their financial health and ability to secure the best loan terms, insurance rates and employment prospects. However, for all the importance that consumers’ credit standing plays in their lives, a new study shows that an uncanny number of individuals still fail to understand basic knowledge about this three-digit number or how they influence their access to opportunities.
A study from the Consumer Federation of America and VantageScore Solutions found that 40 percent of survey participants did not know that credit card issuers rely on their credit scores to make decisions about eligibility and pricing, and another 42 percent failed to realize that mortgage lenders also lean heavily on this data when making loan determinations. The study also revealed that consumers know little about what influences their credit score rating, with 43 percent believing that age drives their score, and 40 percent falsely reporting that marital status plays a role. Misunderstandings about how credit card debt and acting as a co-signer impacts their rating were also reported, and may heavily affect whether these individuals are able to maintain or improve their standing.
"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," said Stephen Brobeck, CFA’s executive director. "Low credit scores will often cost car buyers more than $5000 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 cell phone service, electric service, and rental housing."
How to learn more about credit
Many individuals may shy away from trying to better understand their credit scores because they are unaware of where to look for information. While individuals are entitled to a free copy of their credit report from each of the three credit bureaus, consumers must pay for their credit scores. A recent U.S. News and World Report article gave some tips on where to look for credit score information, such as Quizzle.com and the three national credit bureaus – Equifax, Experian and TransUnion. These websites may provide tips and resources that help individuals understand the many facets of their scores, how they’re calculated, strategies to improve them and which parties may access the ratings. Individuals can also learn more by enrolling in credit counseling and speaking with a professional.