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Credit Scores and Reports

Consumers’ credit score knowledge is declining, despite uptick in free scores

New study finds many Americans are confused about what affects their scores

Summary

A new study by VantageScore and the Consumer Federation of America shows consumers’ credit knowledge has declined sharply in recent years, calling into question just how many are taking advantage of free credit resources available to them.

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Free credit scores are more widely available than they’ve ever been. And yet, Americans’ knowledge about credit scores is at an eight-year-low, according to new research from VantageScore and the Consumer Federation of America.

According to the groups’ annual credit score survey, consumers’ credit knowledge has declined sharply in recent years, calling into question just how many consumers are actually taking advantage of all the free credit resources that are available to them.

In some cases, the percentage of consumers who can answer even the most basic questions about how credit scores work has regressed by as much as 10 to 20 percentage points, the survey found. In 2012, for example, 85 percent of respondents knew that trimming their credit card balances could help improve their scores. In 2019, just 66 percent of respondents knew it.

See related: 10 tips to improve your credit score

Many consumers don’t know what affects their credit

Consumers appear to be especially confused by what affects their credit scores. For example, many mistakenly think they can freely open multiple credit card accounts whenever they want without damaging their scores.

The truth is every credit application leads to a hard inquiry on consumers’ reports, chipping away at their scores. The damage is usually short-lived. But if you apply for a lot of credit all at once, you’ll not only damage your score more significantly; you may also spook potential lenders.

A substantial number of consumers also wrongly believe that repeatedly checking their credit scores will damage their scores. That, too, is incorrect: You can check your credit score as much as you like, without having any effect on your credit score. If you request a copy of your credit report, that will lead to a soft inquiry on your report. However, unlike hard inquiries, soft inquiries don’t affect your credit.

Many consumers are also confused by what else might hurt their scores. For example, some worry that tapping into their 401(k)s will negatively affect their credit. (It won’t.) Others mistakenly think a late parking ticket will drag down their scores. That’s also wrong: the only way an unpaid ticket will affect your credit is if it goes to collections.

Consumers also don’t seem to realize that their credit reports aren’t foolproof, the survey found: A credit bureau or bank could make an error leading to a consequential mistake on your report. That’s why it’s so important to check your credit report regularly.

The Fair Credit Reporting Act gives you the right to dispute errors on your credit report and get them corrected. However, you have to check your credit report first in order to see if anything is wrong. Federal law also gives you the right to check each of your reports once per year for free at AnnualCreditReport.com.

See related: I signed up for Experian Boost. This is what happened

Credit education costs nothing

The sharp decline in credit score knowledge is surprising considering the proliferation of free scores and other credit education tools over the past few years. Many of the top issuers now provide free credit scores, including, in some cases, to people who aren’t even their customers.

For example, Discover offers a free FICO credit score, customized education about consumers’ specific scores and credit alerts to anyone who signs up for Credit Scorecard. Meanwhile, Capital One offers a similar service called CreditWise that provides consumers a free VantageScore.

However, the recent decline in credit knowledge has also coincided with an improving economy, which researchers say may be partially to blame for the lower levels of credit score knowledge: Since consumers are feeling relatively bullish about their personal finances, they may feel less of a need to keep tabs on their credit.

Consumers are also handling their credit fairly well, separate research shows. Experian’s latest State of Credit Report found the average consumer credit score rose significantly this year, thanks in part to improving credit scores amongst consumers in their 20s and 30s.

See related: My quest for a perfect credit score

How to learn more about your scores

If you, too, feel like your credit score knowledge is a bit shaky, you shouldn’t have much trouble shoring it up. There are a ton of credit education resources available nowadays, including interactive tools that you can use to learn more about your personal score.

Some credit scoring tools, such as CreditWise, offer a credit simulator that lets you test how certain actions, such as paying down debt, or increasing your credit limit, could affect your score.

The credit scoring companies, FICO and VantageScore, and the credit bureaus, Experian, TransUnion and Equifax also offer a ton of credit education resources to help you learn more about your credit scores and reports. In addition, the Consumer Financial Protection Bureau offers a number of high-quality guides and other resources to help you learn more about and manage your credit.

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Published: June 21, 2019

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