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Americans clueless on credit scores

Credit scores have a huge impact on personal finances, but many consumers don't know when or why they're used -- or even how they're compiled.

By MSN Money Partner Mar 1, 2011 4:02PM

This post comes from Elizabeth Ody at partner site Bloomberg Businessweek.

 

BusinessWeek on MSN MoneyAmericans don’t fully understand how their credit scores are determined or how the scores may be used, according to a survey by the Consumer Federation of America and VantageScore Solutions.

About 67% of those surveyed incorrectly said that age is used in calculating credit scores, and a majority of those surveyed didn’t know that a landlord or a cell phone company may consider applicants' numbers in deciding whether to offer housing or service and at what price. Almost half of respondents correctly said a credit score is primarily used to assess risk for lenders that a borrower won’t repay a loan, according to the report released this week.

 

"When we totaled up the scores Americans only scored a 60, which if you're in school is a low passing grade," said Stephen Brobeck, executive director of the Washington-based CFA, a nonprofit that advocates for consumers.

 

Most of those surveyed correctly identified what actions would help their score, including making all loan payments on time and avoiding opening several credit card accounts at once. Post continues after video.

"We're having a breakdown in consumer education," said Linda Sherry, spokeswoman for advocacy group Consumer Action. Rather than getting "hung up" on the details of credit-scoring models, "the main point of advice for keeping a good score is to pay your bills on time and not to take out more credit than you need," said Sherry, who is based in Washington.

The CFA and Stamford, Conn.-based VantageScore hired Opinion Research Corp., based in Princeton, N.J., to survey more than 1,000 Americans by phone in January. VantageScore is a joint venture of three credit bureaus, Equifax, Experian and TransUnion, and calculates credit scores on a scale from 501 to 990. VantageScore was created in 2006 to compete with the FICO credit score, developed by Minneapolis- based FICO Corp.

 

Read more from Bloomberg Businessweek and MSN Money:

40Comments
Mar 3, 2011 9:22AM
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Let's get real people. Americans are clueless about most things. Our greatest problem is that we are a severely unenlightened people, but we refuse to believe it because we are Americans. We honestly believe we are the greatest country in the world and no one comes near. What we fail to realize is that we are living on what America once was instead of what it is today. America is on a slippery slope of disaster, and it is all because the people are arrogant, undereducated, self centered fools. When a people think they are great, they have no need to flourish.
Mar 3, 2011 4:02PM
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If you could check your "credit score" like you check your bank balance more people would understand it and manage it.  As it is your score is a black-box operation.  You have no idea what it is any given day or month or even year and you can't find out what this "all-important" number is unless you apply for credit (which can lower it) or pay a fee to FOR profit business.  and a free credit report does not give you your credit score....

Quite a scam, since those who do the scoring are answerable to no-one.

BTW - credit scoring can NO LONGER be used in hiring per the NLRB as it results in a disproportionate bias against women and minorities.

and ask all those banks dealing with "walk-aways" if their FICO score did any good....

Mar 4, 2011 3:25AM
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I don't know about credit scores, but it is pretty obvious this country is woefully lacking in finance education.  People don't understand debt, credit, taxes, fees, compound interest, interest rates, 401k's, Roth's, stocks, bonds, commodity markets, stock markets, the dollar and on and on.  I propose a mandatory class on personal finance in order to obtain a high school diploma.  It's not always an issue of stupidity.  Some people have just never been taught.
Mar 3, 2011 10:56AM
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Our house is paid for, son are the autos, boat, got money in the bank and invested and I will never borrow any money again. Cash is king. Get debt free and get your life back. You will sleep better.
Mar 3, 2011 1:27PM
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you don't have to have a bunch of debt to float a credit score. it seems to me a lot of folks that get into trouble financially spend beyond their means. i remember growing up poor and living within our means. we cooked our meals at home, didn't care what the Jones had, because we we not going into debt to have those things. we lived just fine and did not feel like we were doing without. gee there is a concept. be debt free and loose the stress.
Mar 3, 2011 11:04AM
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Let's look at the FICO scores - what a bunch of crap these are.  A change of address can drop your score by as much as 15 points, as can closing a credit card account.  The way these numbers are tabulated are as confusing as the IRS codes for calculating tax liability.  I doubt we are all that clueless as we are complacent - why bother checking the scores when figuring out how these are calculated or why one "credit offense" drops one consumers score by 50 and another by 100+.  Not to mention half of the information contained in most of the bureau reports is wrong anyway. 
Mar 3, 2011 11:47AM
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I have a real problem with Credit Histories and credit scores, These are private companies that are accessing my private information, They take the information and compile it and make profits off of it, Not only do they have access to my information but when they make a mistake or if someone else  fraudulently uses any of my personal identifiers the credit company uses that against me and does not even do any research to find out if the information is correct or accurate.

 

 

Mar 3, 2011 1:25PM
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Americans clueless???? This article should be edited to say "SOME" Americans are clueless.

 

This is for the MSN Money staff that posts these articles. Why don't you post some basic information on how the "Clueless" American can become informed? I'm really getting sick of the cut and paste articles that insult reader's intelligence and don't offer anything but blowhard opinions instead of TOOLS AND INFORMATION WE CAN WORK WITH THAT MAKES OUR LIVES BETTER!!

 

I can't tell you how good it feels to turn the tables on the credit industry and tell them I'm not interested in using their credit cards.

 

It's really wonderful to not be a slave to credit cards, not having to answer to anyone and pay ridiculous and unnecessary fees.  

Mar 3, 2011 11:51AM
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"When we totaled up the scores Americans only scored a 60, which if you're in school is a low passing grade," said Stephen Brobeck, executive director of the Washington-based CFA, a nonprofit that advocates for consumers. "

 

School must have really changed in the last 40 years because when I went to school 70 or above was a passing grade and 69 and below was a failing grade.

Mar 3, 2011 3:03PM
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Gawd, anyone else tired of the debt is evil, credit is evil rants?  They pop up like weeds, every time there is an article on credit.  I look at it this way, credit/debt is a powerful tool, like a chainsaw or a gun.  It should be used appropriately, by a responsible and knowledgeable person that understands how it works and who will not use it the wrong way.



Mar 3, 2011 2:39PM
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The whole thing is a huge scam that the Department of Justice ought to expose and irradiate. Oh wait, they never prosecute anybody. They let all of Wall St. get away scott free.

The three main credit companies will never tell you exactly how they compute these scores. Or why the simple act of closing an unwanted credit card LOWERS your score? Why do we let prospective employers view score we don't get to see? Why is it next to impossible for an individual to dispute anything about these scores or have them corrected, but any company from anywhere can look at the scores and negatively impact them? Why are companies allowed to advertise on TV that they can send us our scores for free when the scores that they send are all fake?

These companies have WAY TOO MUCH control over our lives with far too little accountability.
This ought to be the next battleground for complete reform.

Mar 3, 2011 9:47AM
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want a good credit score?
Don't borrow money - if you don't have cash , you don't need it.

Never trust a BANK, LAWYER, HOSPITAL, or INSURANCE AGENT

Mar 3, 2011 6:00PM
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A perfect credit rating is the glaring light of one facet of contemporary American capitalist reality that seems to blind the intellectual beejeezers out of most "common folk"!  Could it be that the banking and credit systems that also govern this country are allowed their stranglehold on American pocketbooks by state and federal legislatures and that the terms and conditions set up by these financial entities is convoluted deliberately and with one strident purpose mainly to collect as much moolah as possible?  Americans have the choice and potential of not "playing the game", and of living within their means, and as far as corrupt and greedy politicians and corporations are concerned, the day of reckoning will arrive:  Democracy also must be rid of its excesses if it is to survive. 
Mar 3, 2011 5:02PM
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Much like matching your foes' nuclear arsenal to achieve a defensive stalemate or deterrent, the best credit score is one never or seldom used, because the foe of the consumer is those who supply both the scores and the credit.
Mar 3, 2011 4:42PM
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First of all, we are all caught up in a system that was developed by a couple of smart guys. I call them smart because they are millionaires many times over. They have quite a good gig going. Now, I would like to believe that if the idea of a credit scoring system was presented to congress today, (knowing a bit of what we know now), we would make sure that the system didn't merely target impoverished areas and discriminate against various ethnicities. We would hopefully force the idea/system to be more transparent. If you have a combination of 10 credit cards and personal loans (FICO calls this a good mix) and you looked at your history of the past 24 months, you would have 240 data points. That is, 10x24=240. Lets say your running score was about 720. This is a pretty healthy score. Now, lets also say that you were never late in the past 24 months. That is, you have 240 good data points in the past 24 months. If you are late on just one single payment this month, your score will drop approximately 75 points. The idea is not that you had an honest mistake, but the theory is that you may be getting in over your head. For that claim/thought process, you just took a 10% hit. However, 1 negative data point in the past 24 months (or 240 data points) represents a late payment history of .4%. My opinion is, that the score should be dropped a similar amount. That would equate to about a 3 point hit. Your new score would be 717. The trouble is, the devil is in the detail. It all comes down to the formula. The government conducts an investigation of the credit scoring system about every 3 years. The most recent report is about 300 pages. The one thing they do not get into is the methodology of the mathematical models. Painful topic. I have spent a great deal of time on this research. Have some fun,...go on the FICO websited. Look at the history of FICO. All of their history is "for profit" related. This is NOT an unbiased system.
Mar 3, 2011 1:25PM
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Why the big thing over credit?  You want to improve your credit?  Stop buyng on credit and use cash.  Nobody is going to turn you down for paying with cash.  The personal financial mess Americans are in is do to the over use of credit especially credit cards.  You want to take that trip to Hawaii, well just put it on the credit card.  Buy those tickets to the Nick's game, put it on the credit card.  I have watched people paying for groceries putting the purchase on a credit card.  A credit card should only be used in an extreme emergency as with any credit purchase.  Get yourself on a budget and stick to it.  Get yourself out of debt and stay there.  DO not buy a new car and pay for it with credit.  Buy a used one and pay cash.  Invest your savings and then buy that small home, the one you can afford.  All these people complaining about the debt of our government and yet personally are up to their eyeballs in personal debt do to credit purchases.  My wife and I got out of the credit scam and now live just fine not worrying how we will pay our bills next month.
Mar 3, 2011 2:58PM
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There is nothing wrong with having credit cards and working to build good credit.  The key is to be disciplined in their use and payment.  I charge just about everything I purchase (including gas and groceries) and I pay the bill each month.  By doing this I earn miles and get two air fares to Florida paid for about once a year.  I am unaware of any such benefit by using cash.
Mar 3, 2011 6:30AM
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The consumer gets conflicting information regarding what affects your credit score -- Too many cards, canceling cards, too much debt, too much available credit..... it's enough to make anyone's head spin. You need to get new gas, electric, or phone service set up? They check your credit, and the consumer gets dinged for that.  I agree with the advice they give here, just pay your bills on time!


Mar 3, 2011 10:43PM
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This article has a mistake, Age is used in calculating your credit rating, you loose points for being younger or older.  Youth loose points for lack of experience, seniors loose points for potential death. 

 

Your credit company will not show you that they use this, however in working in a credit union I have seen the paperwork that substantiates this. 

 

Mar 3, 2011 8:20PM
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Americans are clueless about most things.  If Americans had a clue about how to handle their finances they wouldn't be in the financial mess that so many seem to be experiencing.   What Americans are good at is throwing the blame for their problems on someone or something else.  Simple minded children.
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