Most Americans do not understand credit scores despite the scores’ increasing importance in obtaining loans, insurance, housing and even jobs, according to a survey released today by the Consumer Federation of America and Providian Financial.

Most consumers do not understand what credit scores measure, what good and bad scores are, and how scores can be improved. The survey interviewed 1,027 American adults in late July.

Stephen Brobeck, CFA executive director, said during a conference discussing the survey results that credit scores should become another key number, such as weight, that Americans keep track of on a regular basis.

“The cost of not knowing your score and its significance could be not only denial of credit but also difficulty obtaining needed services and even a job,” Brobeck said.

Most consumers surveyed correctly understand that lenders use credit scores, but only a minority know that electric utilities, home insurers and landlords often use credit scores to decide whether to sell a service and at what price. The good news in the survey is that most consumers – 59 percent – recognize that their knowledge of credit scores is only poor or fair.

Other findings of the survey include:

  • Only about one third correctly understand that credit scores indicate the risk of not repaying a loan, not factors like financial resources to pay back loans of knowledge of consumer credit.

  • More than half incorrectly believe that a married couple has a combined credit score.

  • Few consumers know what constitutes a good score. Only 12 percent correctly identified the low 600s as the level below which they would be denied credit or have to pay a higher, subprime rate. And only 13 percent correctly understand that scores above the low 700s usually qualify them for the lowest rates.

  • Many consumers do not have a clear idea how to improve their credit score. About 40 percent don’t understand that paying off a large balance on a credit card will improve their credit score.

“Even if they were aware of their score and their significance, many would not know how to improve it,” Brobeck said.

  • Many who try to learn their credit score in the future will be surprised to learn that there is often a charge. Almost 75 percent incorrectly believe they can obtain their credit score for free once a year. That right was recently established for free access to one’s credit report, but not for free access to one’s credit score except when applying for a mortgage loan.

“Consumers would be wise to check their score periodically, but they should definitely learn their score before applying for a loan, insurance, an apartment or a job,” Brobeck said.

Employers are increasingly using credit scores as one measure of a potential employee’s discipline and prudent behavior, Brobeck said. That shift comes as employers are desperately seeking reliable information on potential employees now that organizations don’t freely give out information on past employees because of lawsuit fears.

“Whether we like it or not, that’s the reality,” Brobeck said.

That’s yet one more reason for consumers to educate themselves about credit scores. There’s a lot of information out there about the scores, Brobeck said, and financial institutions could help make sure consumers understand the significance of the scores and possibly offer their customers free access to their credit scores.

“I think banks could probably do a little better job of getting that information into the hands of consumers,” Brobeck said.


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