Consumers, on average, can barely pass a test about recent changes in the credit score market and that means they may not know how their scores score — or don’t — when it comes to securing credit.
The Consumer Federation of America (CFA) and VantageScore Solutions say on 22 credit score questions administered by Opinion Research Corp. to over 1,000 consumers late last month, on average, consumers answered only 60 percent correctly.
Most did not know who makes credit scores available, what is a strong score, nor the financial cost of a poor score.
“The bad news is that consumer knowledge has lagged behind recent changes in the credit score marketplace,” said CFA Executive Director Stephen Brobeck.
(Take the CFA/VantageScore Quiz to see what you do and don’t know.)
Your credit score is a numerical rendition of your creditworthiness. It indicates how well or how poorly you’ll repay a debt. The higher the number, the more likely you’ll repay on time.
But there’s not just one score. There are a growing number of both generic and lender-specific credit scores, few of which are identical.
For instance, scores based on credit reports from one of the three main credit bureaus – Experian, Equifax, and TransUnion – may use either of the two main scoring systems – FICO with its range of scores from 300 to 850, or VantageScore with its range from 501 to 990. Most scores currently used by mortgage lenders and made available to borrowers use the FICO scoring system.
“Today, the most important fact about your credit score is not its level but its relation to other scores from that source,” said Brobeck.
He added, “For example, a 700 score may be either a good score or only a fair score depending on the scoring system.”
Government rules going into effect this July will require greater disclosure of credit scores and how they are used.
“The new score disclosures will be most beneficial to those who understand the new credit score marketplace,” said Barrett Burns, President and CEO of Experian’s VantageScore Solutions .
“That’s why we are joining with CFA over the next year to inform financial educators and individual consumers about how to best participate in this marketplace,” said Burns who works for a credit bureau that long denied free access to credit scores.
All bureaus have long fought free credit score disclosures to consumers, much as they fought free credit reports.
Credit scores have been around for decades, at first before consumers even knew they existed, and only recently has federal intervention mandated free credit score disclosures (still, with too many limitations) to help consumers understand how they are tabulated.
And they do need to know.
On the 22-question CFA-VantageScore quiz, consumers on average answered 60 percent correctly.
Consumers who had obtained their scores scored higher, but not by much (64 percent), than those who never obtained credit scores and got 54 percent correct.
In addition to what credit scores represent, most consumers do not know that:
• A credit score mainly represents the risk of not repaying a loan (48 percent correct).
• Age (33 percent correct) and marital status (40 percent correct) are NOT factors used to calculate a credit score.
• On a $20,000, 60-month auto loan, borrowers would usually pay $5,000 more in interest with a bad score than with a good one (30 percent correct).
Next week: “What You Should Know About Credit Scores.”
Courtesy of Realty Times