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.
This post comes from Elizabeth Ody at partner site Bloomberg Businessweek.
Americans 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:
Some years ago, as a bank loan officer, I was trying to explain to a customer the concept of a loan's APR and the corresponding daily finance charges ( APR/365=daily periodic rate). The poor soul demanded to know why we charge interest on weekends since the bank is not open for business (in those days) on Saturdays and Sundays.
I think I wept that night.
True story.
Just don't get a credit card? Is it that hard to understand? If you don't have the cash on hand to buy it. DON"T BUY IT!
The only point I'll concede that some debt is okay is housing mortgage, but still, when I'm prepping for buying a house, I won't buy one with out having a whole lot to put down (half or more).
Don't be stupid, don't spend what you don't have.
I understand a credit score just fine. It's a number that billionare bankers make up, using arcane and often arbitrary formulae which they claim make sense, to justify exactly how much they want to ruin poor people's lives. It's 100% bullcrap, just like everything else these stuffed suits on Wallstreet do to justify their selfishness, greed, and fear of people who are better than them. They know they're worth nothing to nature and deserve to die, so anything they can do to hold on with a deathgrip to the power they've seized for themselves is perfectly justified in their opinion. They'll never come down from their ivory towers, and as long as we play the game their way, by pretending that made-up nonsense like a credit score matters or that they are ever under any circumstances to be trusted, they will continue to make us their slaves.
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.
I'm really curious about that too. I sense that you meant that the walk-aways had good credit scores, but I'm not so sure. I think that relaxed lending standards let people get loans that never would have if banks had stuck to the 'strict rules of loan underwriting.' I mean, anyone could get a loan, even people with bad credit.
I guess only the banks know, but I bet that they know well. Credit scoring seems to be as strong as ever, it seems logical if people can't handle debt in other areas of their life, they won't be able to handle it in a mortgage.
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....
I think they are getting downvoted because they are too simplistic. Used correctly, a credit card is the best cash management tool, bar none.
A credit score is based on an applicant's ability to handle installment and revolving debt. If you never have an auto loan and never have a credit card, you haven't demonstrated any responsibility to the banks that will lend you money.
Most people could swing saving up for a car, no problem. It's not a matter of discipline, what is key is that most people won't be able to avoid financing for a house or a business and without a favorable credit history - they will overpay for those critical loans.
STH41, you are correct and I do the exact same thing. I even pay my motgage with my credit card. last year my wife and I got 4 free roundtrip tickets. It has oftentimes occured to me that I am not certain why this bank likes me, I have yet to pay a dime in intrest, so the only money they really make off of me is a $50 annual fee. A small price to pay, in my opinion.
However, it is incredibly easy to not pay attention and then you forget to pay the balance, then you get intrest applied and the next thing you know, you are mired in huge debt. It happens every single day.
If you are not in complete control of your finances, this :juggling" act can get costly very quick.
In a way, they were correct, aren't the age of your credit accounts considered in your credit score? I thought they were, some of the standard advice on credit scores was not to close accounts that you have had in good standing for a long time. I have a credit card that I've had for 20 years, a 23-year old, just graduating from college probably doesn't.
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