Consumer Payment Card News

U.S. Credit Score Myths & Realities

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A significant amount of U.S. consumers incorrectly believe that tax liens (64%), medical collection accounts less than six months old (62%), and civil judgments (63%) are used in the computation of credit scores. To a lesser degree but significant are consumers who incorrectly think that age (41%) and marital status (38%) are used in this calculation. 

According to a new survey by the Consumer Federation of America (CFA) and VantageScore Solutions, potential borrowers are more likely to have obtained their score than non-borrowers. Seventy percent of those who intend to purchase a consumer or mortgage loan in the next year, compared to 57% who were not planning to borrow, said that they had obtained a credit score in the past year. And not surprisingly, these potential borrowers know somewhat more about credit scores than non-borrowers, with scores on individual questions that are typically 5-10 percentage points higher.

Key survey findings include:

• A large majority correctly identify key factors used to calculate credit scores but have an incomplete understanding of all the factors.

• Similarly, a large majority correctly indicate some, but not all of the ways to raise credit scores.

• Over the past four years, even though the percentage recently obtaining their credit reports (versus their credit scores) in the past year has increased (from 29% in 2014 to 36% in 2018), the percentage who say it is important to check these reports has declined (from 72% in 2014 to 67% in 2018).

Consumers can raise their credit scores or maintain high scores by:

• Consistently making their loan payments on time every month. A late payment may lower one’s credit scores by dozens of points.

• Using a small portion (30% or less) of the credit available on a credit card. In general, the higher the percentage of a credit line that is drawn down, the lower one’s credit scores.
• Paying down credit card debt rather than just shifting it to another credit card or to a home equity loan. Also, do not open several credit card accounts at the same time

• Regularly checking one’s credit reports to make sure they are error-free. This can be done for free annually.

To improve your credit knowledge take an online credit score quiz (www.CreditScoreQuiz.org) developed and maintained by CFA and VantageScore.

http://www.creditscorequiz.org

 

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