It’s now easier than ever to see your credit score for free thanks to a growing number of credit card providers offering free credit scores to cardholders. But according to a study released March 12 by the credit bureau TransUnion, more access hasn’t led to more understanding. Many consumers remain mystified by the three-digit number.
The study, which included results from a February 2015 poll of 1,000 adult American consumers, finds we are especially confused by the data that goes into our credit scores and are frequently uncertain about what’s included in our credit reports.
For example, 45 percent of consumers polled by TransUnion mistakenly believed that rental payments directly affect scores. Forty-seven percent thought cellphone payments were regularly included.
Even people who recently checked their credit reports were confused — indicating that increased access to credit information doesn’t necessarily mean consumers understand it.
For example, nearly half the consumers who checked their credit report sometime in the past year wrongly assumed a pay raise would help bump up their score. More than half who checked it within the past month thought if they paid off overdue debt, it would automatically boost their credit standing.
Even consumers who recently checked their credit were befuddled. Forty-one percent incorrectly assumed their income was listed on the report. Fifty-five percent wrongly thought their job history was included.
Ken Chaplin, a senior vice president at TransUnion, thinks widespread misinformation about credit scores is partially to blame for the confusion. “People are relying on information that might not be official,” says Chaplin. For example, some consumers may be turning to misleading websites that dole out untrustworthy advice. “There are a lot of companies out there that are offering help,” he says. “Unfortunately, there are, in some cases, ones that are unscrupulous and preying on people who are credit-challenged and looking for quick, easy answers.”
Consumers may also be relying too heavily on information they receive from friends or colleagues, says Chaplin. “What drives it is the coffee shop or cocktail party mentality where you’re talking about your financial credit scores with people who may not be in the know,” he says. Often, people will hear speculation and fail to fact-check it. Even worse, they might pass that misinformation on to others.
“You really do need to take ownership of your credit life yourself,” Chaplin says. Rather than rely solely on what you hear from friends or family members, you’re better off consulting directly with primary sources, such as the credit bureaus themselves, he says. Government agencies — such as the Federal Trade Commission or the Consumer Financial Protection Bureau — and trusted news sites are also useful sources of information.
Credit bureaus could be clearer, says CFPB
According to the Consumer Financial Protection Bureau, credit bureaus could also help clear up the confusion by providing clearer information about credit reports and scores — particularly through the reports themselves.
In a February 2015 survey, the CFPB found consumers struggle to make sense of their credit information despite having increased access — in part because the information they were given was too opaque to understand.
For example, some consumers found credit reports “overwhelming” and struggled to decipher the information and terminology. Others felt powerless to change their credit scores or were uncertain of what they could do improve their standing with the bureaus.
“Efforts by credit reporting companies to make it easier for consumers to access and interpret their reports could be a useful contribution to helping consumers access and navigate the credit reporting system,” said the CFPB in a Feb. 19 news release.
Access to credit information is important. But efforts at transparency may not be nearly as successful if people aren’t given the right tools to understand it.