Free brochure addresses misconceptions on credit scoresmortgagepress.comcredit scores, consumer knowledge, education
According to a new survey by the Consumer Federation of America
(CFA) and Fair Isaac Corporation (FICO), nearly 50 percent of
American consumers do not understand key facts about credit
scores:
•49 percent do not understand that credit scores measure
credit risk; and
•45 percent incorrectly think that increasing one's income
will increase one's credit score.
"Despite all of the news coverage about credit scores over the
past year, many consumers still do not understand important facts
about these increasingly influential numbers," said Stephen
Brobeck, CFA executive director.
To provide consumers with basic information about credit scores,
CFA and FICO have prepared a new free brochure that is being
distributed by the Federal Citizen Information Center (FCIC). "This
credit score brochure contains the most important information about
the score most businesses use--the FICO credit score--including
what factors influence its rise and fall, and how consumers can get
their own scores," said Cheri St. John, vice president of Global
Scoring and Consumer Solutions for Fair Isaac.
"The Federal Citizen Information Center is proud to work with
CFA and Fair Isaac to distribute this very valuable consumer
resource," said Mary Levy, FCIC director of Consumer Information
and Education. "This public/private sector partnership means that
more consumers will get the information they need to manage their
credit, improve their credit scores and get the best possible
credit terms the marketplace has to offer. It's a win-win-win
situation for the consumer, the credit industry and the
government."
Many consumers misunderstand scores and the means to
improve them
The survey was conducted by Opinion Research Corporation (ORC)
during Feb. 10-13. The 1,013 people surveyed by telephone are
representative of the adult American population. The sampling error
is plus or minus three percentage points.
When given four definitions of a credit score, only 51 percent
correctly indicated that it represents "someone's credit risk."
Forty-nine percent said that it represents credit availability,
debt levels or credit IQ, or that they did not know what it
represents.
Respondents who were most knowledgeable about the definition of
credit scores were those with incomes over $75,000 (66 percent),
those with a college degree (63 percent), and those 35-44 years of
age (62 percent). Those with the least knowledge of this definition
were those with incomes under $25,000 (34 percent), those without a
high school degree (35 percent), and those 18-24 years of age (34
percent).
When asked what actions would improve a person's credit score,
nearly everyone (93 percent) correctly said that "paying off one's
debts" would do so. But nearly one-half also incorrectly said that
"getting a job that pays a lot more" (45 percent) and "inheriting
$1 million" (40 percent) would also directly raise one's credit
score.
Again, those with the least knowledge about what will raise a
credit score were the young, the least affluent and the least
educated. For example, 67 percent of those aged 18-24 incorrectly
believe that increasing one's income raises one's score. Sixty-two
percent of those who have not completed high school and 57 percent
of those with incomes under $25,000 also incorrectly believe that
higher incomes raise credit scores.
Free brochure explains management of
scores
CFA and Fair Isaac have prepared a brochure--"Your Credit
Scores"--that is available free from the FCIC Center or online at
the FCIC, CFA and Fair Isaac Web sites.
Key information in the brochure includes the following:
•Many kinds of businesses use credit scores today
including: telephone companies, electricity and natural gas service
providers, apartment landlords, and of course, banks, mortgage
lenders, credit card companies and auto lenders.
•FICO credit scores range from 300-850, and a score above 700
indicates relatively low credit risk, while scores below 600
indicate relatively high risk, which could make it harder to get
credit or lead to higher loan rates.
•The difference between a 580 and a 720 FICO credit score
could mean a three percentage point difference in a mortgage rate.
That would represent a $72,000 difference in mortgage loan costs
over the lifetime of a 30-year, $100,000 fixed-rate loan.
•Your payment history affects about 35 percent of a FICO
credit score; how much you owe30 percent; the length of your credit
history15 percent; and applying for new credit10 percent.
•You can raise your credit score by paying bills on time,
keeping balances low on credit cards, paying off debt rather than
moving it between credit cards, and taking other measures outlined
in the brochure.
A unique feature of the brochure is a group of examples of how
two different consumers use credit, and how their use influences
their FICO credit scores over time. For example, when one consumer
runs up two credit cards to nearly their limit, his ex-wife's
credit score declines by 80 points since her name is still on both
card accounts. When another consumer makes steady payments for a
year on credit cards, significantly lowering balances, her credit
score rises by 50 points. Organizations that provide credit scores
are listed along with information about other kinds of risk scores,
Web and phone access, and related prices.
For more information, visit www.pueblo.gsa.gov, www.myfico.com or www.consumerfed.org.
