How is a credit score calculated? A survey of America’s credit knowledge

The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.

In the U.S., a credit score determines whether Americans can purchase a home, rent an apartment or even qualify for certain jobs. Despite the significance of credit scores, many consumers are unaware of how they are calculated and what factors can positively or negatively impact them.

According to a survey conducted by LendingTree, more than a third of respondents reported having no idea how their credit score was determined.

Given the significance that credit scores have, how much do American consumers know about their credit scores and the system responsible for them?

We surveyed 3,000 Americans to find out more about how much they know about the credit industry and accessing their information.

Key findings:

• Nearly half of respondents said they had never checked a copy of their credit report.
• A third of respondents disagreed with the statement “I know what information of mine the credit bureaus have access to.”

Half of Americans have never checked their credit reports

When asked to agree or disagree with the statement “I have checked a copy of my credit report,” 52 percent responded “no.”

Women were slightly more likely than men to have checked a copy of their credit report, with 54 percent of women reporting “yes” compared to 50 percent of men.

Credit reports are a record of a consumer’s financial history that inform how a credit score is calculated, with different scoring methods weighting various events, or items, differently (which is why a person’s FICO score will typically be slightly different from their VantageScore).

In many cases, a lender will not only look up an applicant’s credit score but will also request a copy of the applicant’s credit report, leading to someone being denied despite having an excellent score.

Additionally, just as there is more than one kind of credit score, each consumer has three separate credit reports maintained by the three credit reporting bureaus: Equifax, Experian and TransUnion. A debt does not have to be reported by a lender or creditor to all three bureaus, which can lead to discrepancies between the three reports.

Normally, consumers can view one free credit report per bureau per year. However, since the advent of the COVID-19 pandemic last year, consumers have been able to request a free copy of their credit report once a week from each of the three credit bureaus. (This benefit will be ending soon.)

If only half of respondents had ever reviewed a copy of their credit report, how many were knowledgeable about what information the credit bureaus had access to?

What do the credit bureaus know? A third of Americans are unsure

About 33 percent of respondents disagreed with the statement “I know what information of mine the credit bureaus have access to.”

Consumer confusion around credit reporting is well known: according to the same LendingTree survey mentioned above, most consumers knew that paying bills on time and credit utilization factored into the determination of their score, but fewer were aware that the length of credit history or applying for credit could affect scores as well.

Lack of awareness around the credit bureaus featured more prominently in younger respondents, with 50 percent of respondents between the ages of 18 to 24 indicating that they “strongly disagreed” with the statement.

Impact of credit knowledge

Having knowledge about the credit industry and how it functions, what information a lender can access regarding your financial history and how this information is reported has a direct bearing on the financial health of consumers.

Based on findings in an annual survey conducted by the CFA and VantageScore Solutions, LLC, low-income households were less aware of the credit industry than high-income households, and were more likely to lack the knowledge needed to raise and monitor their credit scores.

Your credit standing is determined by more than a single score, and it is possible to proactively monitor and improve your credit by tracking your credit reports and ensuring their accuracy.

Being knowledgeable about what can negatively or positively affect your credit, monitoring your credit reports regularly and disputing errors can help you prevent mistakes that may have long-term effects on your credit. If you’re wondering where to start, we can help with that.

Methodology

This study was conducted for Lexington Law using Google Consumer Surveys and interpreted by Progrexion Marketing. The sample consisted of no less than 1,000 completed responses per question. Post-stratification weighting has been applied to ensure an accurate and reliable representation of the total population. This survey was conducted in February 2021.

Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.