Did you know that a low credit score can do you more than just make it difficult to get a loan or a credit card? If you didn’t realize your score could keep you from renting an apartment or getting a mobile phone, you’re not alone.
A new national survey sponsored by the Consumer Federation of America found that consumers greatly underestimate the cost of low credit scores, and a significant minority don’t know that non-creditors use credit scores.
Only about half of the participants in the survey (53%) know that electric utilities may use credit scores to determine the required initial deposit. Only about two-thirds know that they may be used by home insurers (66%), cell phone companies (68%), and landlords (70%).
Only about half of consumers (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 consumers understand the basics of credit scores, such as the importance of making loan payments on time,” noted Stephen Brobeck, CFA’s Executive Director. “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,” he added.
Millennials Know Less Than Gen-Exers
The national survey also revealed that millennials (18-34 years of age) know less about credit scores than do gen-exers (35-51 years of age). On eight of nine key knowledge questions, gen-exers scored more highly than millennials. For example, 89 percent of gen-exers, but only 73 percent of millennials, know that 700 is usually a good credit score.
In part, these differences probably reflect simple experience. On nine key knowledge questions, the differences between those who had looked up their credit score within the past year, compared to those who had not, ranged from 10 to 20 percent points. On the same knowledge questions, the differences between those who had ever obtained a free copy of their credit report, and those who had not, ranged from 11 to 26 percentage points.
Millennials are less likely than older Americans to have obtained either their credit scores or credit reports. Nearly two-thirds (65%) of gen-exers, but only about half (51%) of Millennials, said they had ever received a free credit score. Moreover, nearly four-fifths (79%) of gen-exers, but less than three-fifths (57%) of Millennials, said they had ever obtained a free copy of their credit report.
What This Means For You
Ultimately, this points to an unfortunate gap in the knowledge of a generation that’s quickly aging into the marketplace. However the situation is not as dire as it seems. Millennials are very aware of their knowledge limitations about credit scores. Only 42 percent of Millennials, compared to 57 percent of gen-exers, said their knowledge of credit scores was good or excellent.