Nick, & Cindy Davis

Credit Scores Go up

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Survey: Consumers grasp of credit is the lowest it’s been in eight years – however the number of individuals who think they understand how credit scores work went up. Congratulations, America. Credit scores nationwide are going up. Having said that, understanding of how credit works is declining.

 

Credit Scores Go up - However Fewer People Know Why

Credit Scores Go up – However Fewer People Know Why

 

Consumers grasp of credit is the lowest it’s been in eight years, as outlined by an annual survey by credit scoring company VantageScore and the Consumer Federation of America, a nonprofit association of consumer groups. For example, 62% of those surveyed in 2019 knew that everyone has more than one credit score. In 2012, 78% knew that.

More and more people rated their own knowledge highly despite knowing less. In an era when free credit scores and reports are readily available, this is perhaps not surprising. The share of respondents who called their credit knowledge “excellent” or “good” was 60% in 2019, up from 54% in 2012.

Millennials were a bit more modest. Only 56% of those ages 21 to 38 rated their knowledge as “excellent” or “good,” in comparison to 61% of individuals ages 39-54 and 65% of those 55-73.

Why credit scores are going up

The average FICO score in 2018 was 704, reported by FICO, continuing a consistent rise from a low of 686 in 2009 during the Great Recession. The average VantageScore – FICO’s competitor – was 680, continuing to climb however not yet as high as the 685 observed in 2008.

Factors including a large-scale economic recovery, low unemployment and consumers confidence in their own finances led to higher scores, says Rod Griffin, director of consumer education and awareness at Experian.

Of course, consumers being more careful with money considering that the financial downturn also played a part, Griffin says.

Also, millions of people experienced a score bump during the last two years as the three major credit bureaus – Experian, Equifax and TransUnion – stopped including some negative marks on credit reports, including tax liens, civil judgments and some types of collections.

What you don’t understand about credit can hurt you

The knowledge survey showed that all generations misunderstand some components of credit.

Among the findings, a substantial share of respondents didn’t know that:

Checking your own credit never hurts it (38%)
Opening several credit card accounts at the same time can reduce your score (38%)
Cellular plan providers could use credit scores to price services (41%)

It’s crucial for millennials, who have many financial decisions ahead, to understand what factors influence a credit score . Fortunately, two factors make up the largest part of what affects your credit score – paying bills in a timely manner and keeping credit card balances as low as possible.

“A lot of credit is boring. It’s all about consistency and keeping your debts as low as possible and making your payments on time,” says Griffin.

The best way to stay on top of your credit

• Monitor things: Checking your score frequently is a healthy habit and it won’t hurt your credit. Even more important is checking your credit reports for accuracy. They may have errors that drag down your score, and you can request to have them removed.

To check your reports, you can utilize any of the free apps or websites that offer them. Federal law also entitles you to a free copy of your credit report every year from each of the three credit bureaus; request them at annualcreditreport.com.

• Understand who sees your score: “Most people still understand that credit card issuers and mortgage lenders use credit scores,” says Stephen Brobeck, senior fellow at the Consumer Federation of America. However the survey established that only 65% of people knew landlords used credit scores, while only 59% knew cell phone companies used them and 58% knew home insurance providers did.

Also, potential employers may check your credit report prior to hiring you. And in most states, car insurance providers are able to use your score to set premiums.

• Educate yourself: Griffin recommends using free tools to understand how your score and reports work, rather than just checking them occasionally. The Consumer Federation of America website has the credit quiz used in the survey, which is a great place to begin. And several personal finance websites offer educational content alongside a free score.

Ready to find your new home here in the Tampa Bay and Surrounding Areas? Nick, Cindy & Nicholas Davis with RE/MAX Premier Group are here to assist you with all your Real Estate Needs. We are always available at 813-300-7116 to answer your questions or you can simply click here and we will be in touch with you shortly.

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