WASHINGTON - September 20 - Consumer understanding of and access to credit scores improved over
the past year but still is insufficient, according to the second annual consumer credit score survey
commissioned by the Consumer Federation of America (CFA) and Providian Financial.
"In the past year, consumer understanding of these scores has improved, in part because
many consumers have obtained their scores," said CFA Executive Director Stephen Brobeck.
"Unfortunately, most consumers still do not know basic facts about credit scores and their
financial significance," he added.
Now that a wide range of businesses, not just creditors, use credit scores in product
pricing and availability, the costs of low scores, and savings from high scores, can be
considerable. "If consumers were to raise their credit scores by only 30 points, on average, they
would save $16 billion on lower credit card finance charges alone," said J. Christopher Lewis,
Providian’s Chief Public Policy Officer.
Consumers can raise their credit scores by:
- Paying their bills consistently and on time.
- Not maxing-out their credit cards or other "revolving credit."
- Paying off debt rather than just moving it around, and not opening many new
- Checking their credit reports, which are now free, to make sure they are error free.
Federal law now requires the three main credit bureaus to make available on
request, at no charge, an annual credit report to consumers.
Consumer Knowledge of Their Own Credit Scores Increases
In late July 2004 and in early August 2005, Opinion Research Corporation (ORC)
conducted extensive surveys of consumer access to and knowledge of credit scores for CFA and
Providian. In both 2004 and 2005, ORC surveyed more than 1000 representative adult
Americans. The margin of error in these surveys was plus or minus three percentage points.
In 2005, 31% of those surveyed said they had obtained their credit scores in the past year.
In 2004, only 24% said they had obtained their scores in the past year.
Over the past year there was a significant change in where consumers obtained their
scores. From 2004 to 2005, the percentage getting their scores from credit bureaus increased
from 28% to 36%. In contrast, those obtaining their scores from mortgage lenders or brokers fell
from 35% to 28%.
Consumer Understanding of Credit Scores Improves
The increasing number of consumers who learn their scores appears to help account for
rising consumer understanding of these scores. "Those who have obtained their scores know
significantly more about credit scores than those who have not," noted CFA's Brobeck.
In the past year, there was significant improvement in consumer understanding of what
influences credit scores and who uses them.
- The proportion of consumers who understand that making payments on time influences
credit scores rose from 87% in 2004 to 93% in 2005. Similarly, the proportion who know
that maxing out a credit card influences scores increased from 66% to 77%. ·
- The proportion who understand that various lenders and other service providers use credit
scores to price and make products available increased -- from 81% to 91% for mortgage
lenders, from 77% to 86% for credit card lenders, from 50% to 58% for cell phone
companies, and from 47% to 57% for home insurers.
But Most Consumers Still Lack Essential Knowledge About Credit Scores
Most importantly, more than three-quarters of consumers (76%) mistakenly believe that
they have the right to obtain their credit score for free once a year. "Clearly many consumers
think that their right to a free credit report extends to credit scores as well," said Providian's
Lewis. "Unless consumers apply for a mortgage loan or obtain our credit card, they must
purchase their scores for a small fee," he added.
Consumers also are confused about other characteristics of credit scores.
- Only 27% understand that scores measure credit risk, not credit knowledge,
amount, or attitude. And less than half (47%) understand that individuals have
more than one score -- one from each of three major credit bureaus and other
scores as well.
- · Only 54% understand that maxing out a credit card will lower one's credit scores.
And only 20% know that just making minimum payments on credit cards will
lower one's scores.
- · Less than one-quarter (23%) know the identity of the three major credit bureaus.
Low-Income and Least Educated Least Likely to Understand Credit Scores and Know Their
In analyzing differences among various demographic groups -- defined by gender, age,
ethnicity, and region among other factors -- income and education stand out as the two factors
that are associated with differences in understanding of credit scores and knowledge of one's
For example, nearly two-thirds of college grads (64%), but only 27% of those without a
high school degree, have obtained their credit scores. Similarly, more than two-thirds of those
with incomes at least $75,000 (71%), but only two-fifths of those with incomes below $25,000
(40%), have obtained their scores.
Furthermore, least educated and lowest-income Americans are far less likely, than most
educated and highest-income persons, to understand what a credit score means, what factors
influence them, and what institutions use them. For instance, only 56% of the least educated and
64% of the lowest-income know that a late credit card payment would lower one's credit scores.
By comparison, 84% of the most educated and 82% of the highest-income understand this
Consumer Lack of Knowledge of Credit Scores is Extremely Costly
Many consumers do not understand how costly lower credit scores are. In the mortgage
area, according to Fair Isaac’s website, on a $150,000, 30-year, fixed-rate mortgage, consumers
with credit scores over 760 will be charged a 5.42% rate with monthly payments of $844, while
consumers with credit scores below 620 will be charged a 7.0% rate with monthly payments of
$998 (if in fact they are able to qualify for the loan) – an annual difference of $1,848.
For this report, Providian used industry data to estimate the impacts of higher credit
scores on consumer costs. Providian estimated that consumers with an average score would
reduce card finance charges by $76 annually if they raised their score by 30 points. If all
consumers raised their scores by 30 points, total consumer savings would equal $16.4 billion.
Consumers Need to Know Critical Facts About Credit Scores
CFA and Providian believe that all consumers should know important facts about credit
- Scores reflect only one's own past credit history, not personal characteristics such
as age and gender or level of income. Over time consumers have the ability to
control these scores.
- · Low scores could not only cost you up to thousands of dollars a year in additional
finance charges, but also deny you access to credit, insurance, electric and
telephone service, a rental unit, and even a job.
- · Consumers with scores below 600 are typically charged relatively high,
“subprime” loan rates, while those with scores above 700 are usually charged
relatively low “prime” rates, and those with scores above 760 are charged the
- · Consumers can purchase credit scores (credit reports are free) from all three credit
bureaus for $44.85 by contacting Fair Isaac (myFICO.com), or individual reports
and scores from the three bureaus -- TransUnion (www.transunion.com),
Experian (www.experian.com), Equifax (www.equifax.com) -- for as little as
$14.50. One can receive a TransUnion-derived credit score monthly for free if
one holds a Providian credit card. Mortgage applicants can obtain their score for
free from the lender.
To help consumers better understand credit scores, CFA and Providian are making
available a Web-based quiz, "Do You Know the Score on Credit Scores?," at
http://www.consumerfed.org/score that tests the credit-score knowledge of consumers, providing
key facts whenever incorrect answers are entered.
CFA is a non-profit association of some 300 consumer groups which seeks to advance the
consumer interest through research, education, and advocacy. Providian Financial is a leading
provider of credit cards to mainstream American consumers throughout the United States.