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Consumers have inferior understanding of the credit score in 2019 than in 2012, when the economy was recovering from the Great Recession, reports the Consumer Federation of America (CFA). The culprits: a better economy and less attention to credit factors.
CFA and VantageScore Solutions turned to Engine Telephone CARAVAN to survey 1,002 American adults on their basic understanding of credit scoring. They have been conducting this study every year since 2011. While there hasn’t been a big change from year to year, over the eight years there has been a slow and steady decline in consumer knowledge. , according to the CFA, a consumer advocacy group.
The percentage of participants giving the right answer for each question was lower in 2019 than in 2012. For example, in 2019, only 62% knew that consumers had more than one score, compared to 78% in 2012. When asked about the factors used to calculate the scores, only 78% (vs. 78% 89%) knew high credit card balances were a factor and only 71% (vs. 90%) knew bankruptcy was a factor.
One of the reasons for this gradual decline in knowledge is probably the rebound in the economy after the 2008-2009 recession. “As household income has increased and unemployment has fallen, and consumers have paid high sums mortgage and credit card debts, their financial situation improved. So they may have felt less of the need to pay attention to their scores, ”said Stephen Brobeck, the former CFA executive director who is now a principal investigator. (Brobeck made his comments on a CFA earnings conference call.)
Oddly enough, even as their actual knowledge diminished, consumers became more confident. In the latest poll, 60% said their knowledge of credit rating is excellent, up from only 54% in 2012. The likely explanation: Since their scores are up, consumers mistakenly assume they need to know more.
While knowledge about scores may be declining, access to scores, through free credit rating sites like Credit Karma and Credit Sesame, is increasing dramatically. During the teleconference, VantageScore Solution President and CEO Barrett Burns said that 2 billion VantageScores were distributed for free last year on these and other sites and that the company is not seeing any correlation between increased access and better scoring knowledge.
“What we think could happen here is that they don’t watch the content that comes with it,” Burns said. “Maybe they’re trading just for the fun of it. We do not know.
To combat this problem of low credit score IQ, the CFA and VantageScore have created an educational tool for consumers known as CreditScoreQuiz.org.
For Forbes Advisor guides on managing your credit scores, see the following