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Survey: Americans Don't Understand Credit Scores

March 15, 2005
Even the most savvy consumer may not have a firm grasp of their credit when they sit down to make a major purchase. At a time when credit scores have taken on increased importance in the consumer marketplace, a new survey finds that almost one half of American consumers don't understand key facts about credit scores.

The survey by the Consumer Federation of America and Fair Isaac Corporation, developer of the FICO credit score used by most lenders to evaluate consumer credit risk, found:

• 49% do not understand that credit scores measure credit risk;
• 45% incorrectly think that increasing one's income will increase one's credit score.

"While increasing one's wealth or income my indirectly increase one's score, only one's credit history affects the score," Stephen Brobeck, CFA's Executive Director, said at a joint news conference. "Despite all of the news coverage about credit scores over the past year, many consumers still do not understand important facts about these increasingly influential numbers."

"Americans do have some control over their credit scores. Most importantly, they need to pay their bills on time, keep their credit balances low, and take out new credit only when they really need it," Brobeck said.

The survey was conducted by Opinion Research Corporation (ORC) during the period February 10 to February 13. The 1,013 people surveyed by telephone are representative of the adult American population. The sampling error is plus or minus three percentage points.

When given four definitions of a credit score, only 51% correctly indicated that it represents "someone's credit risk." Forty-nine percent said that it represents credit availability, debt levels, or credit IQ, or that they did not know what it represents.

Respondents who were most knowledgeable about the definition of credit scores were those with incomes over $75,000 (66%), those with a college degree (63%), and those 35-44 years of age (62%). Those with the least knowledge of this definition were those with incomes under $25,000 (34%), those without a high school degree (35%), and those 18-24 years of age (34%).

When asked what actions would improve a person's credit score, nearly everyone (93%) correctly said that "paying off one's debts" would do so. But nearly one-half also incorrectly said that "getting a job that pays a lot more" (45%) and "inheriting a million dollars" (40%) would also directly raise one's credit score.

Again, those with the least knowledge about what will raise a credit score were the young, the least affluent, and the least educated. For example, 67% of those aged 18-24 incorrectly believe that increasing one's income raises one's score. And 62% of those who have not completed high school, and 57% of those with incomes under $25,000, also incorrectly believe that higher incomes raise credit scores.

The two organizations have prepared a new free brochure that is being distributed by the Federal Citizen Information Center. The brochure contains the most important information about the score most businesses use -- the FICO credit score -- including what factors influence its rise and fall, and how consumers can get their own scores, according to Cheri St. John, vice president of Global Scoring and Consumer Solutions for Fair Isaac.

To get a free copy of this brochure, titled "Your Credit Scores," consumers can contact the Federal Citizen Information Center at 1 (888) 8 PUEBLO (1-888-878-3256) or by writing to the following address: Credit Scores, Pueblo, CO 81009. The brochure is also available online to consumers at: http://www.pueblo.gsa.gov.

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