Case Studies

As a nation, are we credit illiterate?

And if so, how much is it costing us?

Let’s start with that second question, which is easy to answer.

According to Marketwatch, the lack of financial literacy by the average American has cost us a collective $200 billion over the last 20 years! That’s the estimated cost of paying higher interest rates, late fees, not saving for retirement, and the impact of bad decisions caused by living paycheck-to-paycheck.

That comes to $20 billion each year from our lack of financial knowledge – including illiteracy when it comes to credit!

Likewise, The National Financial Educators Council just released a survey that found the average respondent lost $9,724 each year due to their credit and money illiteracy! That backs up the findings of another national study that found that with a mere 20-point increase to our average national credit score, each adult in the U.S. would save almost $5,000 each year!

Now, let’s try to answer the first question we posed, are we just as financial illiterate when it comes to credit scores – or credit illiterate?

On first glance, we might not think so. In fact, the average FICO score reached 700 for the first time ever in 2017, which is a very good score.

But there’s a lot more to the story.

Only 58 percent of Americans have a credit score above that golden 700 number.

And consider that 60 percent of American adults haven’t checked their credit report in the last 12 months, and 66 percent haven’t checked their credit score. That’s about 2/3 of all Americans that don’t even know what’s going on with their credit!

Only 32 percent have received a copy of their free credit report over the last year, and nearly one-in-five Americans haven’t pulled their credit in the last three years!

What’s even scarier is that about 1/3 of all American adults surveyed said that they really didn’t see any reason to pull their credit report or check their score.

Additionally, 56 percent of respondents confessed that they had no idea their credit score was the most important factor when applying for new debt like a mortgage, car loan, or credit card.

And while our national average may be healthy, there’s a wide discrepancy between credit score haves and have-nots.

According to Experian, almost 1/3 of all Americans (30%) have a credit score lower than 601 – which is considered sub-prime. VantageScore also estimates that of the 220 million U.S. adults, 68 million of them have poor or bad scores.

But this isn’t just a snapshot of the good and bad when it comes to credit because we have to factor in those who are credit invisible, too.

Studies have found that about 26 million U.S. adults are credit invisible. While this means that they don’t even have enough of a credit history to garner a score, it’s effectively the same thing as having terrible credit.

Many people are also denied credit even though they want more of it. A reported 67 percent of people who applied for new credit cards in 2015 were denied, and one out of three were approved but for a lower available balance than they’d requested!

Younger adults are really scoring an F when it comes to credit score literacy.

An alarming 68 percent of Americans make at least one significant and costly financial mistake before they even hit the age of 30! These mistakes often cost them dearly as they’re trying to start down the right financial path, and credit score blemishes make take seven to ten years to fall of their reports.

But that doesn’t stop young people from getting credit, as 50 percent of respondents said that they received their first credit score by the age of 21, even though 72 percent had no financial education at all before going to college!

Millennials and Gen Xers are also taking out more debt than ever thanks to student loans, not credit cards. In fact, student loan balances are at an all-time high, with the average student loan balance at $23,186. Our national student loan balance is now $875 billion – higher even than credit cards – and increasing at a rate of $2,853.88 every second!

But it’s not just younger people that are fumbling when it comes to debt, especially credit cards. Seventy-seven percent of us have a credit card, and the average U.S. adult with credit card debt owes $16,048. With a sizable average interest rate of 13.66%, that means $183 is accumulated in interest every month.

One in three carry a balance month-to-month without paying it off, often paying just the minimum payment.

Even worse, nearly 16 percent of people with a credit card balance don’t even know their card’s APR, or true interest rate, and that’s even more prevalent (21 percent) among lower-income households.

So if we’re so credit illiterate, what’s the solution?

It seems the simple fix is just to start teaching financial education in schools. In fact, 99% of adults surveyed thought it would be a good idea to teach about credit, debt, interest rates, personal finance, and credit in high schools or even earlier.

However, the plan runs into a snag when you consider that only 1 in 5 teachers feels qualified to teach a class on financial or credit education!

***

Until they start making the grade, the better solution is to contact Nationwide Credit Clearing for a free copy of your credit report, a complimentary consultation, and the #1 credit repair firm in the country!