Credit: Shutterstock photoIf you want to know how Americans are doing financially, take a look at their credit scores. Credit scores are key to determining whether you'll qualify for a mortgage, loan or credit card and how much interest you'll pay. The higher your score, the more likely you'll be approved for a favorable loan.
The credit scores of Americans tend to fluctuate over time, with different scoring systems showing slightly different results. FICO scores, the most commonly used model, range from 300 to 850 points. The average FICO score was 692 as of April 2014, up from 690 in October 2013 and 689 in October 2012. 1
Source: FICO
VantageScore, the model developed by Experian, TransUnion and Equifax, also shows rising average scores, though they trend a bit lower than the FICO numbers. Like FICO, Vantage scores also range from 300 to 850. The average VantageScore in the U.S. in 2014 was 666, up from 664 in 2013. 2
However, the average VantageScore rises with age -- presumably as consumers build their credit history. Experian's State of Credit 2013 report found that Americans age 66 and older have the highest average VantageScore (735), while millennials have the lowest (628). 3
Credit scores vary by geography, too. The Experian State of Credit 2014 report found the highest average VantageScores clustered around the upper Midwest, while the lowest average scores tended to be in the South and West.
Source: Experian
We don't check our scores ... or do we?
Despite the importance of credit, many Americans take a hands-off approach to their credit scores. The National Foundation for Credit Counseling found that, as of March 2014, 60 percent of adults had not reviewed their credit score within the previous 12 months and 65 percent had not looked at their credit reports. Approximately 54 percent of American adults had not reviewed either their credit score or credit report within the year before March 2014. Only 29 percent had reviewed both. 4
Source: National Foundation for Credit Counseling
A survey by the American Bankers Association released in January 2015 had starkly different findings. In almost a mirror image of the NFCC survey, the bankers' survey found that 60 percent of adult Americans said they have checked their credit report in the past year, and 66 percent said they have checked their credit score. 5
College students are even less involved with their credit scores. A survey in spring 2014 by college market research service Student Monitor found that the majority of students knew that having a good credit score is important, but 74 percent didn't know what their credit score was. 6
Credit score literacy
A lack of knowledge could be why many people don't review their scores -- and could explain the large discrepancy between polls. The NFCC study showed more than half of adults -- 54 percent -- mistakenly believed their credit scores could be found on a standard credit report. 4 The American Bankers Association survey found widespread confusion about the difference between credit reports and credit scores. In the ABA survey, 44 percent of Americans expressed the mistaken belief they are two terms for the same thing. (They're not: Your credit report is a compilation of credit-related information; your credit score is a three-digit number distilled from the report data.)
The Consumer Federation of America and VantageScore delved further into Americans' knowledge about credit scores in April 2013 and found more surprising statistics. Two-fifths of respondents didn't know that credit card issuers and mortgage lenders use credit scores to make decisions about lending to an individual. Similar percentages believed incorrectly that personal characteristics such as age and marital status are used in calculating credit scores. 7
But the survey revealed that women tend to be more knowledgeable than men about credit scores. Only 38 percent of women incorrectly believe that age is used in calculating credit scores, versus 48 percent of men. And 34 percent of women mistakenly thought marital status factors into credit scoring models, while 46 percent of men did. On the flip side, 74 percent of women correctly understand that credit bureaus collect the information for scores, while only 68 percent of men do.
FUN FACT:
A CreditCards.com poll in January 2013 found that credit scores are important to making a love connection. When asked, "If you were about to get seriously involved with someone, would you want to know your partner's credit score," 57 percent of women and 47 percent of men said yes. 8
How Americans describe their credit
While statistics show that many people don't know their credit scores, that doesn't stop them from sounding off on how good their credit is. According to Demos, a nonprofit policy organization, the percentage of indebted households who reported that their credit was "excellent" or "good" in 2012 was 62 percent. 9
However, African Americans and Latinos were less optimistic about their credit. The same Demos survey found that only 44 percent of African-American indebted households and 55 percent of Latino indebted households reported that their credit was "excellent" or "good" in 2012.
College students were less bullish and more confused about their credit scores, according to Student Monitor. The percentage of college students in spring 2014 who described their credit score as "excellent" was only 8 percent. The vast majority -- 55 percent -- didn't know how to describe their credit score. 6
Sources
- Interview with FICO
- Experian's State of Credit 2014 study
- Experian's State of Credit 2013 study
- 2014 Consumer Financial Literacy Survey by the National Foundation for Credit Counseling
- American Bankers Association survey released Jan. 21, 2015
- Student Monitor 2014 report on financial services
- " Credit Score Knowledge 2013 " survey by the Consumer Federation of America and VantageScore
- " Love me, love my debt? No way, poll says " -- CreditCards.com poll conducted by GfK Roper, January 2013.
- " The Plastic Safety Net: 2012 " survey by Demos
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
