On Credit Score Literacy, Americans Get a “D”

Published

March 2, 2011

Contributing writer for Credit.com, Chris graduated with honors from the Columbia University Graduate School of Journalism, and has reported for a number of publications including The New York Times, TIME magazine and Popular Mechanics.

Most Americans do not understand how credit scores work, according to a survey released Tuesday by the Consumers Federation of America.

The majority of Americans – 52% – don’t understand that the purpose of a credit score is to estimate the risk that they will not repay a loan, the survey found.

“Americans only scored a 60, which if you’re in school is a low passing grade,” Stephen Brobeck, executive director of the federation, said at a press conference.

[Related: Starting From Scratch]

Sixty percent of Americans believed that marital status is factored into a credit score, and 67% believed that their age plays a role (neither is true). Only 30% of survey respondents could correctly figure how much a bad credit score would cost them in higher interest payments.

Not all the findings contain bad news. Nearly two-thirds of respondents knew that their scores are based on data gathered largely by the big three credit bureaus, Experian, Equifax and TransUnion. Most Americans – 69% – understand that making all loan payments on time, keeping their credit card balances below 25% of the card’s limit, and not opening multiple credit card accounts at the same time are all ways to get or keep a high credit score.

[Resource: Where Can I Get My Credit Scores for Free?]

“The good news is that a large majority of consumers know the key factors used to calculate scores and the creditors who use these scores,” Brobeck said in a press release.

The survey was co-released by VantageScore, a joint venture of major credit bureaus Equiax, Experian and TransUnion. It involved phone surveys with more than 1,000 people.

Image: Luis Argerich, via Flickr.com