Survey: Americans Don’t Know How Credit Scores are Calculated

Author: Tory Barringer May 14, 2014

Survey results show Americans—and Millennials especially—continue to have only a vague understanding of how their credit scores are calculated and used.

For the latest annual survey, the fourth of its kind, more than 1,000 representative American consumers were asked 19 questions designed to gauge their knowledge of credit scoring. The study was commissioned in partnership between VantageScore Solutions and the Consumer Federation of America (CFA).

While the findings illustrate respondents are aware of a handful of facts surrounding their credit score—for example, nearly nine in 10 know credit card issuers and mortgage lenders use them, and the vast majority know that a spotty financial history can affect their score—there are still some major gaps in their knowledge.

For instance, only half of consumers surveyed demonstrated a solid understanding of the three instances when lenders who use generic scores are required to inform borrowers of the credit score used in the lending decision: after a mortgage loan application, whenever a loan application has been rejected, or whenever the best terms are not available for the borrower.

Moreover, only 42 percent understand that a credit score actually measures the risk of not repaying a loan and is not a measure of credit attitudes or knowledge—a statistic CFA executive director Stephen Brobeck called “most troubling.”

“Consumers should be aware that they can take steps to reduce this risk and improve their scores, most importantly, by making all loan payments on time,” Brobeck said.

Calculating results by age, VantageScore and CFA found Millennials (those age 18–34) tend to have less understanding than older consumers. Among other findings, fewer than half of Millennials seem to comprehend that age is not a factor in calculating credit scores, and less than two-thirds know that the three main credit bureaus collect the information on which their scores are based (compared to three-quarters of older adults).

That gap comes as worrying news for VantageScore Solutions CEO Barrett Burns, who notes that younger consumers tend to start their adult lives with massive amounts of student debts that pose a threat to their credit profiles.

“We know that education can help consumers improve their scores, and whatever the consumer’s age, our aim is to arm him or her with accurate, unbiased information and resources to help them become good credit managers,” Burns said.

To that end, VantageScore and CFA have partnered to launch CreditScoreQuiz.org, a website designed to mimic the survey and inform consumers about how credit scoring works. The organizations also announced plans to host an online question and answer session on Twitter. The discussion, scheduled from 3–4 p.m. Eastern on May 20, can be joined using the hashtag #creditknowledge.

“This year’s survey clearly demonstrates a need to deliver educational resources to younger consumers and we’re pleased to again partner with VantageScore Solutions on the survey and to our broader educational program,” Brobeck said.