Knowledge of credit scoring drops over past year
(TriceEdneyWire.com)
But after Newton earned a second Master's degree and began working with the federal government, she thought she was secure. She now admits that she still has an uncomfortable relationship with money largely because of her lack of credit literacy.
Like many middle class African Americans, Newton makes a concerted effort to monitor her credit score and learn all she can about how to protect it. Yet, Newton, who asked that her identity be kept confidential for the sake of financial privacy, lives with a great deal of uncertainty; especially when something unusual happens that affects her regular financial life.
"I'm the only income earner in my household, but I had a series of medical issues that lost me money and cost me money," said Newton, who owns a home in
Her most recent surgery was in January and the portion she's required to pay is
"All of the safety nets, I was not eligible for them," she said. "You cannot buy something like Aflac unless you have a catastrophic illness like a heart attack or a stroke. Federal jobs provide you a certain privilege but don't protect you. ...I had to start using leave without pay. It does make you feel like what else can you do to feel protected? This destroyed my credit and I face a very uncertain future."
Newton's dilemma illustrates that there is very little financially that Americans can do that isn't in some way tied to or influenced by their credit scores. In the financial world, a person's credit score illustrates their creditworthiness which simply means how likely it is that a person will pay their bills and whether they will pay them on time.
A bad credit score means the owner of that score could end up spending thousands of additional dollars in interest or fees if they want to borrow money, rent an apartment, buy a house, rent or buy a car, obtain insurance. So financial experts stress that it behooves consumers to do all they can to ensure that they keep a positive credit score and hone their knowledge about credit scoring.
In that regard,
In the seventh year that the survey has been conducted by the organizations, one of the major findings is that consumer knowledge of credit scores has eroded over the past 12 months.
According to the survey, a smaller number of respondents were aware that non-credit service providers used credit scores in determining prices and the services they offer. For cell phone companies the consumer awareness was down from 68 percent to 59 percent, and for electric utilities this awareness was down from 53 percent to 44 percent.
"We wish the survey results were more positive," Burns said. "Consumers should make every payment on time and we urge them to check their credit every 12 months. The greater availability of credit scores and credit reports is certainly a net positive for consumers, however the data demonstrates that we collectively have work to do to help consumers understand that credit scores are used by more than just lenders."
Brobeck said the findings generally show that consumers have a dire need for greater levels of financial education.
"One would think that increasing access to one's credit scores would help increase knowledge about these scores," said Brobeck. "But that apparently has not been the case to the detriment of consumers. Low credit scores can cost consumers hundreds, and sometimes thousands, of dollars a year in higher loan and service costs."
On the plus side, the percentage of respondents who said they had obtained at least one credit score in the past year has steadily risen ~ from 49 percent in 2014, to 51 percent in 2015, to 54 percent in 2016, to 56 percent in 2017.
Barrett and Brobeck said that the surveys, in addition to consumer education, are designed to help consumers understand the varied factors that affect their credit. They stressed that it's crucial for people to make loan payments on time. Failure to do so can adversely affect one's credit.
It is encouraging, the pair said, that a large majority of consumers correctly identified key factors influencing scores - missed loan payments (91 percent), high credit card balances (86 percent), and personal bankruptcy (85 percent). And also two important ways to raise their credit scores or maintain high scores - making loan payments on time (96 percent) and keeping credit card balances low (80 percent).
Little research has been done to determine the racial disparities in credit score knowledge. However, there is strong evidence that, in general, credit scores of Blacks are lower than those of Whites. A study by the
One basic cause of the lower credit scores in the
*90 percent of Whites, but only 69 percent of Blacks, knew that personal bankruptcy influences one's credit score.
*86 percent of Whites, but only 73 percent of Blacks, knew that 700 was a good credit score.
*77 percent of Whites, but only 62 percent of Blacks, knew that the
Blacks are aware of this void in their knowledge of credit scoring. In the 2016 CFA/Vantage/Score survey, 54 percent of Whites, but only 40 percent of Blacks, thought that their knowledge of credit scores was good or excellent.
To address the need for credit score education in the general community, CFA and VantageScore have created a 12-question credit score quiz to help educate consumers about credit scoring. The quiz can be found at www.creditscorequiz.org.
"More than half of all African-Americans in our country rent, it's a fact that a homeowner's net worth is 36 times that of a renter, and it's a fact that that the median income for an
Burns concludes, "Credit scores can have an impact on everything from your loan terms to the size of the deposit required to acquire a mobile phone, so it's critical that consumers take our quiz and become educated."
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