Credit score up? Build credit smarts, too

By AMRITA JAYAKUMAR

NerdWallet

Well done, America. Credit scores across the nation are going up.

On the other hand, knowledge of how credit works is declining.

Consumers’ grasp of credit is the lowest it’s been in eight years, according to an annual survey by credit scoring company VantageScore and the Consumer Federation of America, a nonprofit association of consumer groups.

More people rated their own knowledge highly despite knowing less. In an era when free credit scores and reports are plentiful, this is perhaps not surprising. The share of respondents who called their credit knowledge “excellent” or “good” was 60 percent in 2019, up from 54 percent in 2012.

Millennials were a little more modest. Only 56 percent of those ages 21 to 38 rated their knowledge as “excellent” or “good,” compared to 61 percent of people ages 39-54 and 65 percent of those 55-73.

WHY CREDIT SCORES ARE GOING UP

The average FICO score last year was 704, according to FICO, continuing a steady rise from a low of 686 in 2009 during the Great Recession. The average VantageScore – FICO’s competitor – was 680, continuing to climb but not yet as high as the 685 seen in 2008.

Factors such as a large-scale economic recovery, low unemployment and consumers’ confidence in their own finances contributed to higher scores, says Rod Griffin, director of consumer education and awareness at Experian.

Of course, consumers being more careful with money since the financial downturn also played a part, Griffin says.

HOW TO STAY ON TOP OF YOUR CREDIT

Keep an eye on things: Checking your score frequently is a healthy habit and it won’t hurt your credit.

Even more important is checking your credit reports for accuracy. They may have errors that drag down your score, and you can request to have them removed.

To check your reports, you can use any of the free apps or websites that offer them. Federal law also entitles you to a free copy of your credit report every 12 months from each of the three credit bureaus; request them at annualcreditreport.com.

Understand who sees your score: “Most people still understand that credit card issuers and mortgage lenders use credit scores,” says Stephen Brobeck, senior fellow at the Consumer Federation of America.

Educate yourself: Griffin recommends using free tools to learn how your score and reports work, as opposed to just checking them occasionally.