Study: Americans Lack Crucial Understanding Of Credit System
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As members of Congress declare the system that determines credit scores is "broken", a new survey by Credit Takeoff reveals that many Americans remain in the dark about how their score is calculated and how their data ends up in the hands of the credit bureaus.
Only 28 percent of respondents said they are "very knowledgable" about how their credit score is calculated, with only 25 percent saying they have a good understanding of what information goes into their credit reports.
That confusion plays out throughout the rest of the survey, with more than half of Americans (52 percent) falsely believing the credit bureaus must first receive consent before collecting their personal information, and more than 2 in 5 (43 percent) incorrectly stating they have the right to opt out of having the credit bureaus collect their personal data.
Only 28% of Americans
Say they are "very knowledgeable" about how their credit score is calculated
Only 25% of Americans
Say they have a good understanding of what information goes into their credit reports
52% of Americans
Incorrectly believe the credit bureaus must first receive their consent before collecting their personal information
78% of Americans
Incorrectly believe that lenders are required by law to report their information to the credit bureaus
43% of Americans
Incorrectly believe they have the right to opt out of having the credit bureaus collect their personal data
19% of Americans
Have never received or obtained a copy of their credit reports
87% of Americans
Say that having a 700+ credit score is a top financial priority
Many Americans Don’t Understand How The Credit System Works
How would you rate your knowledge of how your credit reports are compiled?
If there's one key finding our survey uncovered, it's this: many people don't feel confident in their knowledge of how the credit system currently operates.
Only about a quarter of Americans say they are “very knowledgeable” about what information goes into their credit reports (25 percent), and only 28 percent of respondents say they are "very knowledgable" about how their credit score is calculated.
Here are some other noteworthy findings from our survey.
Majority Believe Credit Bureaus Need Consent
While the credit bureaus make much of their revenue selling consumer information to lenders, many Americans are unsure how that information is originally collected.
A majority of respondents (52%) incorrectly believe that the credit bureaus must first receive their consent before collecting their personal information.
But there is no law in the U.S. that requires the credit bureaus to obtain the consent of consumers before collecting their data, as Alexandria Ocasio-Cortez, D-N.Y., noted in her questioning of Equifax CEO Mark Begor last month.
In fact, lenders like credit card companies and mortgage companies voluntarily hand this consumer information over to the credit bureaus.
Agree or disagree: Before the credit bureaus collect my personal information, they must first receive my consent
3 In 4 Believe Lenders Are Required To Report Information
Agree or disagree: Lenders and creditors are required by law to report my information to the credit bureaus
One of the biggest misconceptions our survey uncovered is that many people believe lenders are required by law to report consumer information to the credit bureaus, with 78 percent of respondents believing this to be the case.
While the Fair Credit Reporting Act (FCRA) does require lenders to report accurate information to the credit bureaus, they are not required to report any data at all—lenders and creditors do in fact report this information to the credit bureaus voluntarily.
2 In 5 Americans Believe They Can Opt Out Of The System
After the 2017 Equifax data breach, one of the main topics of discussion was around the idea of consumers being able to “opt out” of having their information being held by the credit bureaus.
And while the FCRA does give consumers the right to opt out of prescreened credit and insurance offers, consumers cannot in fact opt out of having their information collected and sold by the credit bureaus.
But our survey revealed that more than 2 in 5 Americans (43 percent) believe they have the right to opt out of having the credit bureaus collect their personal data.
Agree or disagree: I can opt out of and prevent the credit bureaus from collecting and selling my information
1 In 5 Americans Have Never Checked Their Credit Reports
When was the last time you received or obtained a copy of your credit report?
"I've never received or obtained a copy of my credit report"
In 2012, the FTC conducted a study which showed that 1 in 5 Americans had a mistake on their credit reports. These types of mistakes can sometimes lead to consumers paying higher interest rates on their credit cards and mortgages.
And while one of the most effective ways for consumers to correct these types of errors is to regularly check and review their credit reports, 19 percent of our survey respondents said they have never received or obtained a copy of their credit reports.
In addition, 44 percent of respondents incorrectly believe the information on their credit reports are uniformly the same across all three credit bureaus.
Vast Majority Believe Having Good Credit Is Important
Despite many Americans not fully understanding how the credit reporting system operates, our survey also revealed that having a good credit score is very important to a vast majority of respondents.
87 percent of our survey participants said that having a 700+ credit score is one of their “top financial priorities”, while 72 percent responded that they plan to take steps to improve their credit score in the next 12 months.
Still, more than one third of respondents (37 percent) said they are “concerned” with where their credit score is right now, with 31 percent of those individuals saying their primary concern is their credit score is preventing them from buying a home, and 29 percent saying their main concern with their credit score is it's causing them to pay high interest rates on their credit cards.
Agree or disagree: Having a good credit score (700+) is one of my top financial priorities
All results from this study came from a poll commissioned by Credit Takeoff that was conducted online by polling company Pollfish. The poll ran was conducted on March 12, 2019. In total, 500 respondents participated in the poll. Respondents were asked to answer all questions truthfully.
About the Author
Mike is a recognized credit expert and founder of Credit Takeoff. His credit advice has been featured in CNBC, Investopedia, CreditCards.com, Bankrate, Huffpost, The Simple Dollar, Reader's Digest, LendingTree, and Quickbooks. Read more.