Consumers Lack Essential Knowledge of Credit Reports
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"Consumers Lack Essential Knowledge
of their credit reports, ratings and scores"

Consumers lack essential knowledge, and strongly
support new protections on credit reporting and credit scores.

 

Washington, DC-  A new survey commissioned by the Consumer Federation of America (CFA) has found that consumers lack essential knowledge about, and strongly support new protections for, credit reporting and credit scores. An important finding of the survey is that low- and moderate-income Americans -- those who tend to pay the highest price for credit and are most vulnerable to inaccurate credit scores -- are the least knowledgeable about credit reports and scores.

"A strikingly high percentage of Americans not only do not understand basic facts about credit reports and scores, but also acknowledge their own lack of understanding about the subject," said CFA Executive Director Stephen Brobeck. "This recognition, and awareness of the growing importance of credit scores, may explain why there is overwhelming support for new consumer protections," he added.

CFA undertook this survey because the U.S. Senate Banking Committee has asked it to submit testimony about consumer knowledge related to credit reports and scores. This hearing is related to the expiration early next year of some provisions of the federal Fair Credit Reporting Act. The
hearing record of this committee has documented that credit reports and scores are often inaccurate and incomplete, and that these inaccuracies result in many Americans being denied, or paying a high price, for credit and other services.

"An overwhelming majority of Americans believe they need greater rights under the Fair Credit Reporting Act," said Travis Plunkett, CFA's Legislative Director. "Consumers want easier access to their credit reports and scores, greater protections against privacy and credit reporting abuses, and the right to go after lenders in court who repeatedly make grievous reporting errors."

The survey was conducted by Opinion Research Corporation International.  ORCI interviewed a representative sample of more than 1,000 adult Americans from July 18 to 21, 2003. The survey's margin of error is plus or minus three percentage points.

Most Americans Say They Don't Understand Credit Reports and Scores Well

When asked to assess their knowledge of credit reports and credit scores, most Americans say their knowledge is "fair" or "poor." Fifty percent said their knowledge of credit reports was fair or poor, while 61 percent said their knowledge of credit scores was fair or poor.

Lower-income Americans are those most likely to believe their knowledge is not good. More than 60 percent of those in households with incomes under $35,000 said their knowledge of credit reports was fair or poor.  Nearly seventy percent of these low- and moderate-income Americans said their knowledge of credit scores was fair or poor.

Young adults between the ages of 18 and 24 were also likely to say their knowledge was not good. Sixty-two percent said their knowledge of credit reports was fair or poor, while 78 percent said their knowledge of credit scores was fair or poor.

Many Americans Lack Essential Knowledge About Credit Reports and Scores

The survey also tested actual consumer knowledge about credit reports and scores. Only 25 percent of Americans -- and less than 20 percent of those with incomes below $35,000 -- said they knew what their credit score was. And only three percent of Americans could, unprompted, name
the three main credit bureaus -- Experian, Equifax, and Trans Union -- that provide both lenders and consumers with information from credit reports. Forty-three percent of Americans -- only 35 percent of those with incomes below $35,000 -- said they had obtained a copy of their credit report from the three credit bureaus in the past two years.

The survey also tested consumer knowledge using a series of true-false questions. The good news from this test is that large majorities understand that consumers have the right to see their credit report (97 percent) and that consumers who fail to qualify for a loan have the right to a free credit report (81 percent). The bad news is that many consumers do not understand that in most states they must pay a fee to obtain their credit report (54 percent), that their credit score may be
lowered if they use all of the credit available on their credit card (55 percent), that their credit score may be lowered if they apply for a credit card (62 percent), and that they are not required to contact
their lenders if they believe that their credit report or score is inaccurate (64 percent). Also, 27 percent incorrectly believe that their credit score mainly measures their knowledge of consumer credit, not their credit-worthiness.

Finally, the survey tested knowledge about which service providers often use credit scores to decide whether consumers can purchase a service or at what price. Many Americans are not aware that certain service providers frequently use these scores -- 60 percent were not aware that
electric utilities do so, 41 percent for home insurers, 41 percent for landlords, and 38 percent for cell phone companies. By comparison, only 13 percent did not know that credit card companies use credit scores.  Large Majorities Support Stronger Consumer Protections

The survey also questioned Americans about their opinions on new consumer protections currently being considered by Congress. The protections would give consumers greater access to their credit reports and scores, and strengthen individual remedies that they could pursue.
The protections would also require credit bureaus to do a better job of verifying consumer identities and would proscribe certain lender Practices.

Large majorities indicated their support for these protections.  Credit bureaus should do a better job of verifying identities on credit applications to reduce identity theft 96% support, 83% strongly.

Consumers who are denied a loan or charged a high price should be able to get from the lender a free copy of the credit report and score used as the basis for the lender's decision 94% support, 78% strongly.

A bank should not be allowed to use your medical information to make credit decisions without your consent 87% support, 77% strongly.  A bank should be required to obtain your permission before it can share your financial information with other companies it owns 91% support, 76%
strongly.

Consumers should be able to obtain a free credit report and score once a year from the three main credit bureaus 91% support, 71% strongly.  Consumers should be able to sue lenders who knowingly provide credit bureaus with incorrect, damaging information 84% support, 62% strongly.

A credit card lender should not be allowed to raise the interest rate because of a credit problem that involves another lender 75% support, 52% strongly.

"This study provides Congress with a roadmap on how to make the Fair Credit Reporting Act work better for consumers," said Plunkett.  "Consumers want a credit reporting system that is more accurate, more transparent and that better protects their privacy. The best way to achieve this is to put strong baseline federal standards on the books and to allow the states to exceed these standards when needed," he said.  "The results of our survey also point to the need to improve financial education efforts in this country."

The Consumer Federation of America (CFA) is a non-profit association of 300 pro-consumer groups, which was founded in 1968 to advance the consumer interest through advocacy and education.
 

About the ICFE:

The Institute of Consumer Financial Education (ICFE) was founded in 1982 by the late Loren Dunton (creator of the Certified Financial Planner (CFP) designation).  The ICFE is dedicated to helping consumers of all ages to improve their spending, increase savings and use credit more wisely. 
The ICFE is an award winning, nonprofit, consumer education organization that has helped millions of people through its education programs and Resources. It publishes the Do-It-Yourself Credit File correction Guide, which is updated annually. The ICFE has distributed over one million Credit/Debit Card Warning Labels and Credit/Debit Card Sleeves world wide.

The ICFE became an official partner with the Department of Defense/Financial Readiness Campaign in June of 2004.The ICFE was an active partner in the California Student Debt Resource Awareness Project (CASDRAP) which resulted in a new web site: (studentdebthelp.org).  CASDRAP disbanded in 2010, shortly after the web site project was completed.  In 2011 the ICFE assumed the single sponsorship of the (studentdebthelp.org) web site and is now responsible for its content and operation.

The ICFE is also an on-line help for consumers who spend too much.  ICFE's spending help was featured in PARADE Magazine in the Intelligence Report section. The money helps and tips are from the ICFE's Money Instruction Book, our course in personal finance.

Visit the ICFE's other web sites at: www.financial-education-icfe.org and studentdebthelp.org.  Both sites helps consumers and students with mending spending, learning about the proper use of credit, budget and expense guidelines, how to set up and implement a spending-plan and also how to access financial education courses and how to teach children about money. Other ICFE services include: Ask Mr. G,  a free eNews, and an online resource center for students, parents and educators, plus financial education learning tools and a book store.

About the ICFE:

The Institute of Consumer Financial Education (ICFE), founded in 1982 by the late Loren Dunton (creator of the 'certified financial planner' (CFP) designation) and it is dedicated to helping consumers of all ages to improve their spending, increase savings and use credit more wisely. The ICFE trains and certifies Personal Finance Instructors for its own curriculum. It also trains and certifies Credit Report Reviewers and Identity Theft Prevention Specialists.

The ICFE is an award winning, nonprofit, consumer education organization that has helped millions of people through its education programs and Resources. It publishes the Do-It-Yourself Credit File correction Guide, now in its 16th printing and has distributed over one million 'Credit/Debit Card Warning Labels' and 'Credit/Debit Card Sleeves' world wide.

The ICFE became an official partner with the Department of Defense/Financial Readiness Campaign in June of 2004.

The ICFE is also a partner in the national Jump$tart Coalition for Financial Literacy and the California Jump$tart chapter. The ICFE staff is also active with San Diego Saves, an offshoot of America Saves, and the California Student Debt Resource Awareness Project (CASDRAP) (studentdebthelp.org).

The ICFE's on-line help for consumers who spend too much was featured in PARADE Magazine in the Intelligence Report section. The money helps and tips are from 'The Money Instruction Book,' a course in personal finance, positioned to become among the premier programs in the new bankruptcy and debtor education initiatives.

The ICFE Web site at: www.financial-education-icfe.org helps consumers with mending spending, learning about the proper use of credit, budget and expense guidelines, how to set up and implement a spending-plan and also how to access financial education courses and videos and how to teach children about money. Other ICFE services include a free eNews, and an online resource center of financial education learning tools, including videos, books, software and personal finance courses.

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