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Americans’ credit score IQ rises

By Janna Herron ·
Tuesday, May 15, 2012
Posted: 4 pm ET

It appears over the last year Americans brushed up on their credit score facts.

A survey released Monday shows that more U.S. consumers understand who the credit reporting agencies are, how to raise a good score, and who uses credit scores among other key information than just a year ago.

The results raise the possibility that new credit score disclosure rules that took effect last summer are helping to raise awareness about credit.

The survey polled 1,000 U.S. adults in January and was commissioned by Consumer Federation of America and VantageScore, the developer of a generic credit score from the three credit bureaus.

Here are some of the positive findings.

Nine out of 10 consumers knew mortgage lenders and credit card issuers pull credit scores, while between 6 and 7 knew landlords, home insurers and cellphone companies depended on credit scores.

Nine of every 10 could identify that missed payments, personal bankruptcy and high credit card balances hurt credit scores. Between 8 and 9 consumers understood that making on-time payments, keeping credit card balances below 25 percent of the limit and not opening too many accounts at one time will help lift a low score or maintain a good score.

Three-fourths of consumers knew that Experian, Equifax and TransUnion, the three main credit bureaus, collected information used to calculate many credit scores. A similar percentage of people realized they had more than one generic credit score.

Part of the increased awareness may be attributed to exposure to credit scores. Two out of 5 consumers had seen at least one credit score in the last year. Half got them from websites using credit reports from the three main bureaus, while nearly another half received them from a mortgage lender or other creditor. The latter underscores the role of the new credit score disclosure rules that the Fed enacted last July.

Those rules stipulated that creditors must provide the credit score used to make a lending decision to the consumer if credit was denied or granted on less-than-the-best terms available. (Interestingly, between 7 and 8 consumers out of 10 knew creditors must disclose the score under these scenarios.)

"Increases in consumer knowledge probably reflect in part the increased public attention given to credit scores because of the new protections," says Stephen Brobeck, CFA's executive director.

There's still room for improvement, however.

Less than a third of consumers understood how costly, in dollar terms, a low score can be.  The example on the survey: A $20,000, 60-month auto loan will cost a borrower with a low credit score at least $5,000 more than a person with a high score.

More than half of consumers think a person's age or marital status is used to calculate a credit score. They're not. And 1 in 5 consumers believes ethnic origin is a credit score factor. Nope. (Though, there are studies that show correlations between race and scores.)

Last and most disturbingly, less than half of consumers understand what a credit score actually measures. It's not the amount of debt or your financial resources. A credit score gauges the likelihood you won't repay your loan obligation based on your payment history on other loans, how much you owe, what kind of debt you have, your credit history's age and new credit.

Any questions?

Follow me on Twitter: @JannaHerron.

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