An annual survey of consumers shows more people are getting access to their credit scores each year, but understanding of why that score is so important is declining.
The survey, by the Consumer Federation of America (CFA) and VantageScore Solutions, shows access to credit scores rose from 49% in 2014 to 56% this year. That part is encouraging.
But when asked who besides a lender makes use of that score, there has been a steady decline in knowledge of other users. For example, fewer consumers this year knew that a cellphone company accesses your credit score when you open an account. So do electric utilities, but awareness of that fact is also on the decline.
Who else checks your credit score? Pay TV providers do, along with many other businesses that charge a monthly subscription fee.
Impact on car insurance rates
In all but three states, car insurance companies check your credit score when they assign you a car insurance rate. They justify the practice by saying insurance risk is higher for consumers with a low credit score.
CFA Executive Director Stephen Brobeck says the fact that more consumers are checking their credit scores on a regular basis, but have less knowledge about how that score works for or against them, is puzzling.
“One would think that increasing access to one’s credit scores would help increase knowledge about these scores,” Brobeck said. “But that apparently has not been the case, to the detriment of consumers. Low credit scores can cost consumers hundreds, and sometimes thousands, of dollars a year in higher loan and service costs.”
What you don't know can cost you
For example, did you realize that a low credit score can increase loan charges by more than $5,000 on a typical car loan? Or that you might even have more than one credit score?
The survey showed declining knowledge in those areas, and that fewer than half of those in the survey knew credit repair agencies are rarely helpful in improving a credit score.
There was a definite bright spot in the survey, however. More consumers know the correct ways to improve a credit score. Ninety-one percent knew that missing a loan payment lowers your credit score. Eight-six percent also knew that high credit card balances will also drag down a score.
CFA and VantageScore have set up an interactive credit score quiz website at www.CreditScoreQuiz.org to help consumers better understand credit scores.