Most Americans do not understand how credit scores work, according to a recent survey.
A whopping 52% of Americans don’t understand that the purpose of a credit score is to estimate their future credit risk—basically the likelihood on whether they will pay back debt or not.
The average score on the survey was only a 60, which could either be interpreted as a failing grade, or a very low passing grade. Either way, this is not a score to be proud of.
Some alarming statistics: Only 30% of the surveyed respondents could correctly figure how much a bad credit score would cost them in higher interest payments, and over 60% believed that both marital status and age played a role in their credit score—which is not true.
Not all the findings contain bad news. Nearly two-thirds of respondents knew that their scores are based on data gathered largely by the big three credit bureaus, Experian, Equifax and TransUnion. Most Americans – 69% – understand that making all loan payments on time, keeping their credit card balances below 25% of the card’s limit, and not opening multiple credit card accounts at the same time are all ways to get or keep a high credit score.
This survey shows just how important financial literacy is especially in today’s economy. When consumers understand credit and financial concepts prior to entering into an agreement, they will have the knowledge to make more informed financial decisions that will help keep them from falling into many credit and financial pitfalls. My Credit My Future is your gateway credit and financial education, helping to pave the path to better financial understanding.