Poll: Consumers Don’t Understand Credit Reporting, Favor Reforms

A survey commissioned by the Consumer Federation of America (CFA), a liberal advocacy group, 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 are the least knowledgeable about credit reports and scores.

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.

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. The survey’s margin of error is plus or minus 3 percent.

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.

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 3 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.

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.

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 percent support, 78 percent strongly.

A bank should not be allowed to use your medical information to make credit decisions without your consent—87 percent support, 77 percent strongly.

A bank should be required to obtain your permission before it can share your financial information with other companies it owns—91 percent support, 76 percent strongly.

Consumers should be able to obtain a free credit report and score once a year from the three main credit bureaus—91 percent support, 71 percent strongly.

Consumers should be able to sue lenders who knowingly provide credit bureaus with incorrect, damaging information—84 percent support, 62 percent strongly.

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