Survey reveals consumers ‘don’t get’ credit scores

The majority of Americans don’t fully understand how credit scores are formulated, according to a survey released by the Consumer Federation of America. That gap in knowledge can cost them when applying for a mortgage too.

While the survey showed a big improvement in the last year in the number of Americans knowledgeable about credit and how companies collect credit information on them, Americans overall still don’t fully understand how credit scores are calculated or used.

For example, the survey found that respondents were not fully aware of just how a low credit score could hamper them. “Only 29 percent are aware that, on a $20,000, 60-month auto loan, a borrower with a low credit score is likely to pay at least $5,000 more than a borrower with a high credit score,” according to the Consumer Federation of America survey.

The survey found that 56 percent of respondents mistakenly believe a person’s age and 54 percent say a person’s marital status are used to calculate a credit score. Twenty-one percent surveyed also mistakenly said that a person’s ethnic origin was a factor in calculating credit scores too.

The survey also found that less than half of respondents – 44 percent – understood that a credit score is for measuring the risk of repaying loans. Twenty-two percent mistakenly thought credit scores measured a person’s amount of debt and 21 percent said credit scores were “financial resources.”

Still, the survey found that more people are becoming aware of what can hurt or help your credit score in comparing this year’s results to last year’s. The survey found that more people in the most recent survey knew that a missed payment, bankruptcy, or carrying high credit card balances could lower their credit score. Most respondents also knew that making payments on time can raise their credit score, while missing a payment can lower it.