Home > Credit Score > How Much Do Americans Actually Know About Credit Scoring?

Comments 0 Comments

Every year, the Consumer Federation of America (CFA) and VantageScore Solutions work together to produce the Annual Credit Score Survey. This survey examines how much Americans actually know about the credit system. With the average credit score reaching a record high of 700 last year, Americans might know a lot more than we think.

The survey tested over 1,000 adults on topics related to the overall credit process. These subjects include:

The 2018 results showed that on the whole, Americans have increased knowledge and participation in the credit score process compared to previous years. Let’s break down the results into three key findings.

Obtaining their credit scores

Finding

The number of individuals who sought out their credit score at least once in the last year rose to 57 percent – an eight percent increase from 2014. The majority of these individuals were potential borrowers, who scored five to ten percentage points higher on survey questions compared to non-borrower surveyees. This suggests that potential loanees are more interested in credit scoring because they are aware of the how it impacts their ability to secure a loan.

Room for improvement

With the 2017 Equifax data breach that exposed approximately 143 million Americans information or the high frequency of errors on credits report, borrowing shouldn’t be the only motivation for regular upkeep. The credit process is like a game of telephone, with information being passed from consumer to lender to credit bureau. Since human error is inevitable, surveillance is key.

How credit scores are calculated

Finding

The Consumer Federation of America found that majority of respondents were able to identify three key factors in how credit scores are calculated: missed payments, high credit card balances, and personal bankruptcy.

Room for improvement

The respondents listed some incorrect items that they thought were also calculated into a credit score, including marital status, age, tax liens, medical debt under six months old, and civil judgments. A key step towards raising your credit score is to fully understand what you’re being assessed on.

How to increase your credit score or keep it high

Finding

This survey also found that the majority of respondents were able to recognize specific ways to either increase or keep your credit score high: 86 percent said to make all loan payments on time, 72 percent said to keep credit cards balances under 25 percent of the credit limit, and 66 percent said by avoiding opening several credit card accounts at the same time.

Room for improvement

Despite being able to correctly identify individual methods to increase their credit score, almost half of all respondents couldn’t identify all three together. Following all score-boosting tactics simultaneously will create better results than performing simply one.

Takeaways

The findings from the 8th Annual Credit Score Survey suggest that Americans are more curious and invested in the credit process than ever before, especially if they are in a life stage that requires borrowing. What has caused this spike in interest? Let’s take a look at a few possible explanations.

High amount of errors on credit reports – As mentioned earlier, approximately one in five credit reports have an error. With this commonality, continuous surveillance is needed to ensure you’re not just another statistic.

Free access to reports – Under the Fair Credit Reporting Act, you are entitled to one free credit report a year from each of the three main credit bureaus: Equifax, Experian, and TransUnion. This gives Americans the opportunity to check their score and dispute any errors immediately. Taking advantage of the three free annual credit checks can help consumers become more familiar and more comfortable with the credit process.

Companies are offering free services – More and more companies are offering a free credit score estimation. This gives Americans additional hands on access to their scores. These estimations will typically provide a basic explanation to accompany the projected credit score, allowing for an additional teaching moment for the consumer.

Ease of access at your fingertips – In a digitally-driven world, consumers have access to millions of online resources regarding credit. This portal of unlimited resources has greatly helped Americans better understand their credit scores.

Credit Scoring 101

In preparation for the next annual survey on consumer understanding of credit scores, let’s review some core features about credit scoring.

How credit scores are actually calculated

  1. Payment History – This accounts for 35 percent of your overall credit score and looks at your ability to make all payments on time.
  2. Credit Utilization – This accounts for 30 percent of your credit score and measures how responsible you are with your credit usage. A healthy credit utilization score would be 30 percent of available credit or less.
  3. Length of Credit History – Accounting for 15 percent of your credit score, this looks at how much experience you have handling credit by observing the age of your accounts.
  4. Mix of Accounts – This makes up 10 percent of your credit score. It’s recommended to have a balance in types of loans between revolving and installment. Installment accounts are mortgage or auto loans on which you pay the same amount every month. Revolving accounts can be found with credit cards or store credit cards, where the amount due varies according to how much you owe.
  5. New Credit Inquiries – Accounting for 10 percent of your credit score, this tallies the number of times you requested a loan in the short term. It’s best to keep this number as minimal as possible.

Methods to boost your credit score or keep it high

According to the Consumer Federation of America, there are best practices you should adopt in order to achieve a high credit score. These recommendations include making consistent loan payments on time, only using up a small portion of your available credit, paying off debt instead of obtaining another credit card or asking for a loan, regular upkeep of your credit report, and increasing your knowledge of how credit scoring works.

Your credit score is your financial reputation. With a higher score you can benefit from lower interest rates and more bargaining power. This year’s 2018 Credit Score Survey showed promising results in American’s credit awareness. By finding value in a higher credit score, consumers are more invested in not only learning more, but participating more, in the credit scoring process. Sign up for your free Credit.com account today to see two of your credit scores.

You can also carry on the conversation on our social media platforms. Like and follow us on Facebook and leave us a tweet on Twitter.

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Certain credit cards and other financial products mentioned in this and other sponsored content on Credit.com are Partners with Credit.com. Credit.com receives compensation if our users apply for and ultimately sign up for any financial products or cards offered.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.



Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team