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Another 10 facts about credit scores, credit reporting, and debt.
That’s because your credit score impacts so much in your life these days, from rent and homeownership to credit card approvals, interest rates on student and auto loans to even employment. But too often, we’re still in the dark when it comes to credit scores, credit reporting, and general financial knowledge about debt management.
As the nation’s leader in credit repair solutions, Nationwide Credit Clearing is committed to helping educate you about these important topics. This is part three of our ongoing series as we count up to 50 things you didn’t know about credit score, credit reporting, and debt.
Look for part one and part two here and contact us if you have any questions or credit issues at all!
1. A survey by the Consumer Federation of America (CFA) discovered that the majority of consumers (just over 50%) had no clue that their credit scores can be checked and monitored by anyone other than credit bureaus. Only 53% of respondents knew that electric utilities checked credit scores and only 68% knew that home insurers, cell phone companies, and landlords regularly do the same.
2. However, even you may be shocked to hear that 90% of home and auto insurance companies check credit scores to help determine your coverage options and also what premiums you’ll pay.
3. A 2016 survey conducted by VantageScore found that only 32% of Americans (less than one-third) had received a copy of their free credit report within the last year, and 16% hadn’t even received a free report within the last three years.
4. Not to pick on college students, but they still have a lot to learn – about their classroom subjects as well as about credit scoring. In fact, a study by Equifax found that only 45% of college kids have any idea what their credit score is! It seems the majority of college students check their credit when applying for a credit card (41%), a new debit card or bank loan (33%) compared to only 4% who request and receive a paid copy.
5. Not only is credit score a crucial factor when you want to apply for a new loan or a mortgage, but employers are screening their potential employees for credit score like never before. It’s estimated that 1 in 4 unemployed Americans have been subjected to a credit score check when they applied for a job, and 1 in 10 has been denied a job because of a bad score or something on their credit report!
6. Adding to the credit score confusion, 45% of respondents think that age is a factor in credit scoring, and 38% believe marital status plays into their credit score. (Do they believe single or married people get a score bump?)
7. On the other end of the spectrum, about 26 million people – or 14% of the adult U.S. population – has no credit score at all, called “credit invisible.” Some of them are immigrants who haven’t had the chance to establish credit lines in the U.S., while others are from low-income or unstable environments and never have taken out a credit card or loan.
8. We all know the Big Four credit card companies now (Visa, MasterCard, Discover, and Amex), but the first ever credit card that allowed a member to purchase anything they’d like and then pay it back over time was called BankAmericard. Issued in 1958, they changed their name to the more-familiar “Visa” in 1977.
In 1966, the Interbank Card Association bought the rights to “Master Charge” from the California Bank Association, which they renamed “MasterCard” in 1979.
9. Americans may be buying new cars, homes, and fancy electronics, but how are we paying for everything? Too often, the answer is with debt. In fact, 52% of Americans spend more money than they earn every single month, and 21% have regular monthly bills that are more than their take-home pay! 1 in 4 Americans have more debt than savings, and the average American spends $1.33 for every dollar they earn.
10. The American Bankers Association found that 44% of Americans surveyed thought that credit scores and credit reports were the exact same thing! That’s probably why a study by the National Foundation for Credit Counseling (NFCC) revealed that a significant portion of consumers thought that they didn’t need to know their credit score because they already had a copy of their credit report.
Online fraud is one of the fastest growing forms of crime, reaching epidemic proportions in a nexus of technology and cruel anonymity that defies international borders. The highest instance of fraud attempts is now aimed at businesses, violating their often-weak or nonexistent firewalls to access customer financial data, and using it with impunity.
Millions of Americans get a credit score boost because of new scoring rules. Will your score go up?
While millions of Americans just filed their taxes in hopes of a big refund, consumers may be getting some good financial news in another arena: their credit scores. That’s because the three major credit reporting bureaus – Experian, Equifax, and Transunion, just reported that they’ll start excluding tax liens from their credit scoring algorithms.
In a concerted effort to improve the accuracy and fairness of their scoring models in respect to public records, a significant number of Americans will see their credit scores jump, virtually overnight (the changes took place April 16.)
The push for reformatting the way judgments and tax liens are factored into credit scoring comes after a study from the Consumer Financial Protection Bureau revealed that incorrect, outdated, or otherwise erroneous information too-often showed up in credit files, sinking that person’s score. So, starting last July, the credit bureaus started their clean sweep of civil judgment data from credit reports, including some tax lien reporting. This April 16, they finished that job.
To be clear, the vast majority of Americans won’t see any difference if they check their credit score again. According to the IRS and other reports, between 93% and 94% of Americans do not have any sort of tax liens reporting on their credit. However, that still leaves about 12 to 14 million Americans that may have tax liens or other judgments affecting their credit score.
The number of people who see a credit score benefit could be even higher. Based on research by LexisNexis Risk Solutions, about 11% of our population will have a judgment or tax lien removed from their credit file.
No matter how you add it up, since the credit bureaus are reshuffling their credit scoring model and excluding tax liens from consideration, these “lucky” millions of consumers will enjoy that sizable score increase.
So, just how high might their scores increase with the new scoring changes?
The answer is “It depends,” of course, because credit scoring is based on a host of factors and individual circumstances (like payment history, status of other existing loans, how seasoned accounts are, and credit mix). While many consumers may see their FICO score up by about 10 points after the April 16 change, a whole lot more could see their score ascend even higher.
For instance, according to a study of 30 million credit files by credit scorer FICO:
• The majority of consumers will see an increase of about 1 to 19 points.
• But between 1 and 2 million consumers may see their scores skyrocket by 20 to 39 points.
• In the case of about 300,000 consumers, their credit scores could go up by as much as 60 points when multiple liens are removed – or more.
But, it’s important to remember that the vast majority of people won’t see any credit score increase at all, as they don’t have tax liens or judgments. Others point to the fact that the 92-93% of consumers who don’t have a tax lien are somehow unduly being penalized because they won’t see their score go up.
Likewise, various financial watchdog groups have gone on record that the changes won’t make a big impact for consumers, at all. According to Eric Ellman, senior vice president of the Consumer Data Industry Association, “Analyses conducted by the credit reporting agencies and credit score developers FICO and VantageScore show only modest credit scoring impacts.”
But wait, is it possible that the credit scoring changes not only make a minimal impact but even harm consumers? “Lenders and servicers have to hedge for that risk,” says Nick Larson, business development manager for aforementioned LexisNexis Risk Solutions. “Overall, consumers actually get hurt,” he goes on, pointing to the fact that banks, lenders, and creditors will have to adjust their guidelines and regulations accordingly (therefore hurting those who didn’t see a credit score increase from erasing tax liens) just to provide the status quo risk-gauging model.
No matter what the temporary impact may be, remember that the best way to maintain a great credit score over the long term – and save thousands on your credit cards, mortgages, loans, and more – is to make your payments on time, keep your balances low, and keep a good mix of seasoned, responsible accounts.
For more help or if you’d like a great credit score increase of your own, contact Nationwide Credit Clearing for a free report and consultation.