How Well Do Consumers Understand Credit Scores And Their Impact?

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Mortgage and Lending with George Souto NMLS #65149 FHA, CHFA, VA Mortgages NMLS #65149

VantageScore Solutions and the Consumer Federation of America (CFA) have released the results of a survey they conducted together through ORC International on How Well Do Consumers Understand Credit Scores And Their Impact?  The survey revealed some interesting results I would not have expected, especially among the Millennial Generation.

One thing which seemed to be clear from the survey is young adults ages 18-34 do not have as much understanding about credit scores as do older adults.  I would have expected the results to be the other way around, since credit scores have been playing a much bigger role in recent years than they did in the past.

The survey asked 19 questions about credit scores to 1004 American Consumers ages 18 and up.  Most consumers regardless of age were aware Mortgage Lenders and Credit Card Companies pull their credit when they apply for a mortgage or credit card, and that a bad payment history will have a negative impact on their score.  But beyond that younger consumers have limited knowledge about credit scores.

One of the results of the survey that was a bit of a shock to me was that only 42% knew credit scores measure the risk of a borrower not repaying a loan.  I wish the survey had gone further in trying to identify what those surveyed felt was the purpose of credit scores if not for identifying risk.  Another surprise was that younger consumers think age is a factor in calculating credit scores. Given the fact consumers between the ages of 18 to 34 start off life with huge Student Loans, I would have expected them to have a better understanding of how credit and credit scores work

A couple of other results from the survey wish were less surprising were:

  • "Less than two-thirds (65%) of millennials, but three-quarters (75%) of older adults, know that the three main credit bureaus collect information on which credit scores are based.
  • Half (50%) of millennials, but nearly three-fifths (59%) of those 45-64 years of age know that credit repair companies only occasionally or never are helpful in correcting credit report errors and improving credit scores."

For the rest of the survey results click HERE, and to take the survey/quiz yourself go to www.creditscorequiz.org.  I was surprised at the results of How Well Do Consumers Understand Credit Scores And Their Impact?  But maybe after you take the quiz you may not be as surprised as I was.

 

Updated Blog:

Do Consumers Really Understand Credit Scores And Their Impact?

 

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 Info about the author:

George Souto NMLS# 65149 is a Loan Originator who can assist you with all your #FHA, #CHFA, and #Conventional #mortgage needs in Connecticut. George resides in Middlesex County which includes #Middletown, #Middlefield, #Durham, #Cromwell, #Portland, #Higganum, #Haddam, #East Haddam, #Moodus, #Chester, #Deep River, and #Essex. George can be contacted at (860) 573-1308 or gsouto@mccuemortgage.com

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Rainmaker
1,687,098
Nina Hollander
RE/MAX Executive | Charlotte, NC - Charlotte, NC
Your Charlotte/Waxhaw/Fort Mill Area Realtor

Good morning, George. I think there is more misunderstanding of credit scores and how they are derived and how they impact people than most any other item in the financing process.

May 19, 2014 10:44 PM #1
Rainmaker
348,434
ReadySetLoan Condo Approval Team
ReadySetLoan Condo Team LLC - South Windsor, CT
The FHA/VA Condo Project Approval Specialists

Hi George - I am not surprised about the lack of credit knowledge with "millenials".  I read last year that the majority of incoming college freshman did not know how to use a toaster!  I don't think that they have much knowledge of anything that is not connected to a screen.

May 19, 2014 10:54 PM #2
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Ed Silva
RE/MAX Professionals, CT 203-206-0754 - Waterbury, CT
Central CT Real Estate Broker Serving all equally

George, we have a better cognizance of the impact of credit scores than most as it is a foundation for our business. Prior to getting into the business I was not very concerned with the scoring system as I knew my bills were paid and had never had a problem obtaining credit.

May 19, 2014 11:05 PM #3
Rainmaker
589,646
Bill Roberts
Brooks and Dunphy Real Estate - Oceanside, CA
"Baby Boomer" Retirement Planner

George, Really? Credfit Repair doesn't work? Then why do most mortgage guys work with a credit repair service? Aren't their results good enough (even if not lasting) to get the borrower qualified?

Bill Roberts

May 19, 2014 11:50 PM #4
Rainmaker
2,369,627
Sheila Anderson
Referral Group Incorporated - East Brunswick, NJ
The Real Estate Whisperer Who Listens 732-715-1133

Good morning George. It is difficult to fix even mistakes on credit reports so fixing a bad one is really hard but important.

May 19, 2014 11:51 PM #5
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George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Nina I agree, even some in this industry have a lack of understanding on how credit scores work

Eric ..... LOL  You might not be to far from the truth there .... LOL

Ed I guess if I were to look back prior to my years as a Loan Originator I might of felt the same as you.  Pay my bills and there is nothing to worry about.

Bill I don't use Credit Repair Services for a few reasons.  They charge people for the same advice I will provide them for free.  Many are more concerned with eliminating the debt rather than increasing the score.  For example they have the client send them money for the Credit Repair Service to determine how to best use it among the creditors.  They will then go late on the payments to use it as leverage for the creditor to take a lessor amount to pay off the debt.  That may get rid of the debt quicker, but it send the credit scores down the little porcelain bowl.  If a Borrower follows my advice I can usually have their score where it needs to be for a loan anywhere from 1-6 months, and not risk getting bad advice from a Credit Repair Service which will keep them from being able to get a mortgage for a long time.

Sheila you are right for those trying to do it on their own it can be challenging.  But I have a pretty good system and support staff in place that if it is a mistake, we will get it fix fairly quick.

May 20, 2014 12:55 AM #6
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Dick Greenberg
New Paradigm Partners LLC - Fort Collins, CO
Northern Colorado Residential Real Estate

Hi George - I think it takes some exposure to the system to help develop an understanding of how it works, and, as you point out in regard to student loans especially, many younger people just haven't had the opportunity to get much beyond a few credit cards.

May 20, 2014 03:12 AM #7
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Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland

Not surprising at all George.

Age is a factor in knowledge of any subject. 

Understanding credit is not a matter of learning, it's a matter of experience.

It takes a bit of age to gain experience - - in anything.

May 20, 2014 03:28 AM #8
Rainmaker
1,358,442
Patricia Feager
DFW FINE PROPERTIES - Southlake, TX
Selling Homes Changing Lives

George --- another valuable post. Unfortunately, I think many people have misconceptions about credit scores and may not even care about it, unless they need to make a major purchase. It's too bad more young people didn't learn to count their pennies growing up instead of receiving a plastic credit card and a cell phone paid for by their parents. 

May 20, 2014 04:38 AM #9
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George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Dick I hate to say it but I think there is a lot of truth in what you said.

Lenn experience does count for a lot like you said, but the younger generation grew up with credit cards and being in debt almost from the time they were party trained.  So I guess I expected a little more understanding of the system from them.

Patricia you are right, parents do make it easy for kids these day.  This subject should be taught in High School, and maybe it would avoid some of the issues many face today.

May 20, 2014 04:51 AM #10
Rainmaker
289,114
Randy Mitchelson, APR
iPartnerMedia.com #goipm & Homeland Heroes Home Loans - Estero, FL
First Impressions are made at First Click

It's not part of the school curriculum in most cases, so I am not surprised about the level of credit ignorance. Parents are not the best sources to teach it either so there's a vaccuum. One of the things I want to do soon is partner with Junior Achievement to go into classrooms and teach kids basic facts about credit.

May 20, 2014 07:23 AM #11
Rainmaker
2,007,709
Anita Clark
ColdwellBanker SSK Realtors ~ 478.960.8055 - Warner Robins, GA
Realtor - Homes for Sale in Warner Robins GA

George: I would love to say I am surprised by the results but I am not. Many millennials I help buy homes are not well versed on many aspects of the real estate/mortgage industry.

May 20, 2014 07:51 AM #12
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Silvia Dukes PA, Broker Associate, CRS, CIPS, SRES
Tropic Shores Realty - Ich spreche Deutsch! - Spring Hill, FL
Florida Waterfront and Country Club Living

George, I think it's more surprising to us because we know.  There is obviously a lack of education although information about credit scores is easily available and obtainable.

May 20, 2014 09:46 AM #13
Rainmaker
1,586,619
Ginny Gorman
Phillips Post Road Realty ~ 401-529-7849~ RI Waterfront Real Estate - North Kingstown, RI
Homes for Sale in North Kingstown RI and beyond

George, I think it is important to get these facts out there and for parents to do a better job of educating their young on credit!!

May 20, 2014 10:23 AM #14
Rainmaker
1,235,608
Nick T Pappas
Assoc. Broker/Broker ABR, CRS, SFR, e-Pro, @Homes Realty Group, Huntsville AL - Huntsville, AL
Madison & Huntsville Alabama Real Estate Resource

George, I'm looking forward to taking this credit score quiz.  To be honest, the results you reported was pretty much what I expected.

May 20, 2014 11:05 AM #15
Rainmaker
2,029,310
Joe Petrowsky
Mortgage Consultant, Right Trac Financial Group, Inc. NMLS # 2709 - Manchester, CT
Your Mortgage Consultant for Life

Good morning George. Information about credit needs to be taught, not only by parents, but in grammar school and high school. If not, the results are as you described.

May 20, 2014 06:24 PM #16
Rainer
33,810
American Brokers Realty Group
American Brokers Realty Group, Inc - Cape Coral, FL

Very useful info, I will keep this in mind in the future.  Well written blog looking forward to more in the future.

May 20, 2014 08:43 PM #17
Rainmaker
1,748,807
Andrew Mooers
MOOERS REALTY - Houlton, ME
Northern Maine Real Estate-Aroostook County Broker

Jane and Jimmy are hooked to the credit score coat tails of their parents... for well into the 20's. They don't have the savvy knowledge because they don't have to, chose to or it is cheaper to have the parent's insurance coverage, the rest of the expense involved run through Mom and Dad who are established.

May 20, 2014 09:11 PM #18
Rainmaker
540,585
Maria Gilda Racelis
Home Buyers Realty, LLC-Manchester, Bolton. Vernon,Ellington - Manchester, CT
Home Ownership is w/in Reach. We Make it Happen!

Hi George: "I should qualify for a mortage. I just get a new car. They approved me for $30K." Okay.. then let us have a loan officer prequalify you.

Although credit score is a huge factor in prequalifying an applicant, it is not only the determinant. I have a buyer who could not get a mortgage for now although her credit score is in the 700. She has one credit card that has not been used since 2006.

The key is the proper use of credit.

May 20, 2014 09:41 PM #19
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