Do you know what your credit scores are? If you don’t, you’re not alone. In fact, many people know very little about their credit scores, what they are or how they work. And they certainly don’t understand that having low credit scores can have a big impact on their future.
Are you one of these people?
Recent research from the Consumer Federation of America and VantageScore Solutions highlights some of the crucial credit score information most people don’t know. According to the survey that polled 1,000 American consumers, almost half of the respondents did not know that a credit score measures the risk of a person’s likelihood to default in 90 days, as opposed to factors such as knowledge of – or attitude toward – consumer credit. This is paramount, as lenders typically review a person’s various credit scores before authorizing a loan.
The youth factor
Although people of all ages showed a lack of knowledge regarding important credit score information, the results show that the wider knowledge gap exists with Millennials (ages 18 – 34) than with older Americans.
Less than half of all Millennials understood that age was not used when calculating credit scores, according to the data. Meanwhile, more than 60 percent of adults (45-64) understood this.
Millennials also were less likely than older adults to know that credit scores are based on information collected by each of the three main credit bureaus.
“It isn’t a big surprise that consumers in the 45-60-year range know more than younger consumers about credit scoring, but the generation of consumers coming into the workforce is particularly challenged by massive student loans. A student loan is a great opportunity to help establish good credit for these consumers, but the concern is that many of these young adults could miss payments and begin their financial lives deep in debt with low credit scores, putting them in a difficult position,” says Barrett Burns, president and CEO of VantageScore Solutions.
Knowledge is power
Many people fail to realize how many different ways poor credit scores can affect their lives. Credit scores affect not only whether a person can receive a loan but also the interest rate a person pays for the loan.
The data shows that while the majority of all respondents understood that their credit scores would be reviewed by credit-card issuers and mortgage lenders, they did not know that electric utilities, home insurers, landlords and even cell phone companies may also review this information.
In short, a good credit score could save you hundreds or thousands of dollars in interest or rate payments when compared with possessing a poor score. If you want to improve your scores, the first step is to obtain your credit scores so you know where you stand. Not surprisingly, individuals who obtained their scores in the past year knew more about credit scores and how they are used by lenders in the market than those who didn’t obtain their scores in the last year.
“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 managers of their credit,” Burns said.
To get a true picture of your credit status, it’s best to review your credit reports and credit scores from multiple sources. Test your knowledge about credit scores at www.CreditScoreQuiz.org, which was created by VantageScore Solutions and Consumer Federation of America. Both the online quiz and a corresponding brochure are available in Spanish at www.creditscorequiz.org/Espanol.
For more tips and resources to educate yourself regarding credit scores, visit the VantageScore Website. There you’ll find useful information regarding what impacts your credit score and how to be a good manager of your own credit.