There’s a prevailing narrative that American consumers don’t understand credit scores and how they work. However, a recent survey shows that we’re getting savvier about credit scores, are more concerned about them, and working harder to improve them. Let’s look at the data.
New survey by Consumer Federation of America
In the eighth installation of its annual credit score survey, the Consumer Federation of America reported that Americans are smarter about their credit scores and more concerned about the credit score process compared to three years ago.
It’s important to note that the survey polled those who recently accessed their credit scores, so that indicates a baseline interest. But other recent surveys across the board show a growing interest by consumers in understanding and improving credit scores as well.
What the survey says
More than 1,000 individuals participated in the survey that quizzed them on topics such as how credit scores are calculated and methods to improve credit scores. The survey found those most likely to investigate their credit scores are mulling over a major purchase funded by borrowed funds such as a mortgage or car loan.
Of those surveyed, 70% planning to borrow funds accessed their credit scores but close to 60% not planning to borrow also checked their credit score. The rift between these two groups was significant when it came to understanding the nature of credit scores with a 10-15 point gap demonstrating deeper knowledge by planned borrowers.
Understanding credit score calculations
Most survey participants could identify some factors that drive credit scores but didn’t understand all the factors. These include payment history, mix of credit, new credit, utilization, and average age of credit. Most knew that skipping payments and high card balances hurt their scores but didn’t understand the bigger picture of their credit score.
Also, most of the respondents knew some of the ways to raise their credit score, but had an incomplete picture. For most people, how to raise their credit score is a grey area and many take actions that harm their credit scores while trying to boost it because of a lack of understanding. For example, paying off debt early can actually drop your score.
More consumers are checking their credit
The CFA study also found that the percentage grew of those checking their credit reports over the past few years. It jumped from 29% up to 36% in 2018. However, the percentage of those who know it’s critical to check their credit report declined from 72% down to 67% in 2018. That’s a discouraging bit of data because checking your credit is always important.
The overall outcome from the study shows that Americans are increasingly interested in their financial health. More are committed to doing what is necessary to learn about their credit and how to improve their score. If you’re interested in understanding and improving your credit score, the information is out there!
Credit score factors
● Payment history: This critical element, accounts for about 35% of your credit score.
● Credit utilization: How much of your credit you use determines 30% of your credit score.
● Age of credit: The longer you’ve had credit, the better as it accounts for 15% of your score.
● Mix of accounts: One of the least understood factors, this 10% looks at types of credit.
● New credit: This 10% of your score boosts slightly for opening new accounts now and then.
To find out more about improving your credit score, check out our Credit Score Keys DVD today.