Consumers in the Dark on Credit Scores: Survey

By Sarah Borchersen-Keto, CCH Washington Staff Writer

A new survey shows that a majority of consumers are unaware of their own credit scores, and the ways in which companies and organizations are using those scores to evaluate individuals as prospective customers, employees or tenants.

The survey, carried out by the Consumer Federation of America (CFA) and Providian Financial, revealed that only 34 percent of respondents correctly understood that credit scores indicate the risk of not repaying a loan, as opposed to factors like financial resources to pay back loans or knowledge of consumer credit. The survey also showed that 52 percent of respondents incorrectly believe that a married couple has a combined credit score.

"Many consumers may not have taken the time to learn more about credit scores because they do not know how scores affect the availability and price of credit," said Providian Senior Vice President Alan Elias.

Among the other findings included in the survey are the fact that 40 percent of those surveyed did not understand that paying off a large balance on a credit card will improve one's credit score. The survey also showed that only 12 percent of respondents identified the low 600s as the level below which they would be denied credit or have to pay a higher, subprime rate. Meanwhile, only 13 percent correctly understood that scores above the low 700s usually qualify them for the lowest rates.

"Now that credit scores are increasingly used by utilities, insurers, and employers, as well as creditors, it is essential for consumers to learn their score and what it means," said CFA Executive Director Stephen Brobeck. "The cost of not knowing your score and its significance could be not only denial of credit but also difficulty obtaining needed services and even a job," he added.

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Posted September 21, 2004.