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, tomorrow, 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.” (See attached fact sheet on proposed FCRA reforms.)
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.