A survey recently conducted by the Consumer Federation of America (CFA) and VantageScore Solutions reveals that many consumers do not understand credit score details with important cost implications.
The firm’s sixth annual credit score survey reveals that only 22% of consumers know that a low score, compared with a high score, typically increases the cost of a $20,000, 60-month auto loan by more than $5,000.
What’s more, only about half (53%) know that electric utilities may use credit scores (for example, in determining the initial required deposit), while only about two-thirds know that these scores may be used by home insurers (66%), cell phone companies (68%) and landlords (70%).
Over two-fifths think that marital status (42%) and age (42%) are used in the calculation of credit scores.
Only about half (51%) know when lenders are required to inform borrowers of their use of credit scores – after a mortgage application, when a consumer does not receive the best terms on a consumer loan and whenever a consumer is turned down for a loan.
“The good news is that [about 80% of] consumers understand the basics of credit scores, such as the importance of making loan payments on time,” says Stephen Brobeck, executive director for the CFA, in a statement. “The bad news is that this knowledge is limited and, each year, can cost them hundreds of dollars in fees on services and additional interest on consumer loans.”
Interestingly, but perhaps not surprisingly, the survey reveals that millennials know less than gen-Xers with regard to how credit scores work. For example, 89% of gen-Xers, but only 73% of millennials, know that 700 is usually a good credit score.
Also, nearly two-thirds (65%) of gen-Xers, but only about half (51%) of millennials, say they have ever obtained a free credit score. And nearly four-fifths (79%) of gen-Xers, but less than three-fifths (57%) of millennials, say they have ever obtained a free copy of their credit report.
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