Borrow Debt

Credit Knowhow Is Going Down. Credit Scores Are Going Up. What Gives?

Molly Povich  |  June 13, 2019

We’ve got good news, and we’ve got bad news. I always vote for hearing the bad news first, so here goes: consumer knowledge about credit scores is the lowest it’s been in the past eight years, according to the Consumer Federation of America’s (CFA) 9th annual credit score survey. Meanwhile, there’s a growing number of people who consider their knowledge of credit scores to be “excellent” or “good” — in other words, “Consumers know less about credit scores, but think they know more,” explains Stephen Brobeck, CFA senior fellow.

Now for the good news — credit scores are on the rise. In 2018, the national average FICO score hit an all-time high of 704 (out of a 300 to 850 scoring range). We’re happy to hear that — but why the disconnect?

What We’re Getting Wrong

Our knowledge of consumer credit has dropped precipitously over the last few years, per the CFA’s survey. Take a look at the numbers — in 2012, 78% of people correctly indicated that people can have more than one credit score, but in 2019, only 62% got that one right. (The right answer: You have many.  Not just one from every bureau, but your score is sliced and diced depending on the type of creditor that asks for it.) Also, in 2012, 85% of people correctly indicated that keeping a low credit card balance can help raise a low credit score, or maintain a high one, but in 2019, just 66% of folks knew that. (The answer: It’s best for your score if you use less than 10% to 30% of your available credit at all times. Even if you pay off your card in full each month, charging up to your max limit is not good for your score.) Additionally, 38% of people today don’t know that opening several credit card accounts at the same time can lower scores, while 33% don’t know that checking the accuracy of one’s credit reports is very important.

While the CFA says there’s no definitive reason for the decline in knowledge, they surmise it may be due at least in part to improvements in the overall economy and consumers’ financial lives since 2012.  It’s a little like feeling like a stock market savant when a rise in the market means your investments are doing well. Consumers, who may have been emboldened by the shedding of their own mortgage debt and the encouraging rise in their credit scores, may be feeling like credit geniuses — while not taking the time to understand all the factors that go into the credit soup.

Taking Steps To Understand

The trouble with that? Economies are cyclical. Recessions come. And tomorrow might be not as great for you financially as today. In other words, just because your scores have improved doesn’t let you off the hook for understanding them. Low scores can be incredibly costly. For example, a low credit score may mean you’re denied access to credit you need, or that you end up paying thousands of extra dollars in interest on loans. They can even result in paying more for auto and homeowners insurance or being turned down for a job.

So, here are your credit to-dos.

  • Pull your credit reports for free from  You’re entitled to one free one each year from each of the three major credit bureaus, Experian,  TransUnion and Equifax. We suggest pulling one every four months just to stay current. They’re similar enough that you’ll be able to see if anything that doesn’t belong to you has shown up.
  • Know your score.  You can get it for free from Credit Karma for Transunion and Equifax, and via the FreeCreditScore website for Experian.  Note: Although having lenders check your score when you apply for credit takes your score down a smidge (which is why you shouldn’t apply for credit you don’t need), that doesn’t happen when you check your score yourself.
  • Maintain good credit behavior.  That means paying your bills on time (which accounts for 35% of your score), keeping your use of credit below 30% of your limits (30% of your score), maintaining long credit relationships (15%), keeping a mix of credit to show you can handle multiple types (10%), and, again, not applying for credit you don’t need (10%). Improvements in your score won’t happen overnight. But they will happen. Give yourself six to 18 months to see a significant difference.

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