Photo (cc) by 401(K) 2013
It literally pays to understand how credit works, but many people just don’t get it.
A good credit score can save you thousands of dollars on mortgages and other loans. Low scores can make it more difficult to rent an apartment, get a cellphone contract, or sign up for utilities.
Unfortunately, a new study released by the Consumer Federation of America shows a large number of Americans fumble with basic information about credit scores. The group commissioned a survey of more than 1,000 people, and here’s what it found:
- Two out of five don’t know that credit card issuers and mortgage lenders use credit scores to make decisions about credit availability and pricing.
- Two out of five wrongly believe that age and marital status affect credit scores.
- More than a third don’t know that their credit scores could be affected if they co-sign a loan.
- More than a third wrongly believe that credit repair services are always or usually helpful in fixing credit report mistakes and boosting scores.
- More than a quarter don’t know that lenders are required to inform borrowers of the credit score used in their lending decision after consumers apply for a mortgage, when they are turned down for a loan, and when they receive less than the best loan terms.
- More than a quarter don’t know basic ways to raise or protect their scores, such as not charging even close to a card’s limit and avoiding too many credit applications.
The study also found that women usually have a better understanding of credit scores. They gave the correct response to a range of questions 5 percent to 10 percent more often than men. Young adults (under 35) understand how credit works at least as well as everyone else, although those between 35 and 44 were the most knowledgeable age group.
Want to see how smart you are about credit? CFA and VantageScore have an online credit quiz. You can learn more about how credit scores work in the video below.