Consumers Need Help Understanding Scores
Overall, American consumers have a long way to go in understanding exactly what a credit score is, according to two recent surveys.
For example, a national survey of 1,500 consumers by the General Accounting Office found that while many respondents understood the basics of credit reporting and the dispute process, only a quarter understood that credit reporting agencies will investigate incorrect reports for free, and half of consumers did not know that maxing out credit cards or home equity loans can hurt credit scores. Many respondents didn't know the specifics of what goes into a report. For example, about half didn't know information can stay on a report for 7 to 10 years. While 70 percent correctly identified the definition of a credit score, only 28 percent could provide a number that would be within a range of possible credit scores.
A second study of 1,000 people, which was done for the Consumer Federation of America and Fair Isaac Corporation by Opinion Research Corporation, found that almost half of American consumers did not understand that credit scores measure credit risk. Forty-five percent incorrectly thought that increasing the family income would increase a credit score. (Another 40 percent thought if they inherited a million bucks, they'd also have a better score).
Both studies found that people with more education, more credit experience and higher incomes understood their credit scores the best.
The studies come at a time when many American's are getting or are about to receive the privilege of free annual access to their credit reports, a benefit made available by the Fair and Accurate Credit Transactions Act of 2003. The phased rollout for the FACT act called for free reports in the Western and Midwestern part of the United States in December 2004. On June 1, residents in the South can receive free reports and by September 2005, all residents in the country will be able to get the reports.
CFA and Fair Isaac have prepared a free brochure that explains the basics of credit reporting. It is being distributed through the Federal Information Center and is available at www.pueblo.gsa.gov; www.myfico.com and www.consumerfed.org.
Copyright © 2005 Bankers' Hotline. Originally appeared in Bankers' Hotline, Vol. 15, No. 4, 5/05
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