Consumers with the most to lose know the least about credit scores and credit reports and that contributes to them paying more than necessary for credit.

What's perhaps most disconcerting about Consumer Federation of America's recent "Credit Scoring Report," is that it isn't news.

"This didn't tell me anything new," said Paul Richard executive director of the San Diego-based, non-profit Institute of Consumer Financial Education (ICFE).

"It confirms that people at the lower end of the income scale end up paying more because credit isn't widely available to them and in many instances they pay too much for it," Richard said.

"Because their incomes are so low they tend to abuse credit. They don't plan to run up their credit accounts. It's because their incomes are low and emergencies come up, the car breaks down, the kid needs treatment, it's an emergency," he added.

When asked to assess their knowledge of credit reports and credit scores, nearly 70 percent of those in households with incomes under $35,000 said their knowledge of credit scores was fair or poor. More than 60 percent of them said their knowledge of credit reports was fair or poor.

"Scores are still confusing. You go to all three different credit reporting agencies and you get three different scores. You go to FICO (Fair, Isaac, Co., the San Rafael, CA-based firm that designed the most popular credit scoring system) and you get another score. The bottom line is that consumers need to be aware of how they work, especially if you want to buy a house or use credit legitimately," Richard said.

What are credit scores?

Credit scores are a statistical evaluation of your creditworthiness -- how likely you are to default on a loan. The higher your score, which ranges from about 300 to 850, the lower the probability you'll default. The best scores begin at about 650 and earn you the best credit terms and lowest rates. Credit scores are used and heavily weighted by lenders when they approve or reject most mortgage loan applications.

Your credit report is a report card of your credit history. Each lender regularly reports and grades how well or how poorly you pay your debts. Lenders also consider your credit report when you apply for credit.

Revealing there's perhaps an even greater need to teach tomorrow's borrowers about credit issues today, young adults were even less informed about credit scoring and credit reports than low-income borrowers. Seventy-eight percent of young adults between the ages of 18 and 24 said their knowledge of credit scores was fair to poor and 62 percent said their knowledge of credit reports was fair or poor.

Overall, 61 percent of all those surveyed said their knowledge of credit scores was fair to poor, 50 percent of them said their knowledge of credit reports was fair or poor.

"A strikingly high percentage of Americans not only do not understand basic facts about credit reports and scores, but also acknowledge their own lack of understanding about the subject," said CFA Executive Director Stephen Brobeck. "This recognition, and awareness of the growing importance of credit scores, may explain why there is overwhelming support for new consumer protections," he added.

CFA contracted with Opinion Research Corporation International to conduct the survey after the U.S. Senate Committee On Banking, Housing and Urban Affairs asked it to submit testimony about consumer knowledge of credit reports and scores. Some provisions of the federal Fair Credit Reporting Act are scheduled to expire next year.

Opinion Research interviewed a representative sample of more than 1,000 adult Americans from July 18 to 21, 2003.

The Senate committee and others have documented that credit reports and credit scores are often inaccurate and incomplete and that those conditions could result in consumers having credit denied or consumers paying more than necessary for credit.

"It takes 45 to 60 days to correct errors. Some of the credit reporting agencies (Equifax, Experian and TransUnion) offer expedited service, but they charge you more for it. These folks are the keeper of the barn keys, so to speak, and they ought to be more available to us when we need them," Richard said.

Among all those surveyed, the survey found:

Published: August 6, 2003

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Broderick Perkins parlayed a career in old-school journalism into a contemporary digital news service that really hits home. The award-winning consumer journalist, originally from Wilmington, DE, is founder, publisher and executive editor of the bootstrap DeadlineNews Group, a Silicon Valley-based editorial content and consulting service specializing in residential real estate, consumer news and related editorial consulting services. The DeadlineNews Group includes the website, DeadlineNews.com, offering real estate editorial content and consulting services, and its back shop, the Deadline Newsroom, an open house on news that really hits home. Perkins obtained his formal journalism education from University of Delaware and a journalism boot camp, the Institute of Journalism Education at the University of California-Berkeley. He went on to 20 years of service as a daily newspaper journalist at the Wilmington, DE News Journal and San Jose, CA Mercury News. Perkins covered housing on the San Jose Mercury News reporting team which earned a General News Reporting Pulitzer Prize in 1989 for coverage of the Loma Prieta earthquake. He has also produced real estate, consumer and small business content for the Wall Street Journal, Los Angeles Times, RealtyTimes.com, Nolo.com, Better Homes and Gardens, the National Association of Realtors, Homestore/Move and Intuit/Quicken among more than three dozen publications. In addition to managing the DeadlineNews Group, Perkins most recently served as chief editorial consultant for Nolo's Essential Guide To Buying Your First Home, Nolo, and writes real estate television scripts for RealtyTimes.com.