The company believes that if consumers don’t understand how their credit score is computed, they will have trouble improving their score before a major purchase, like a home.
“If people believe that unchangeable factors like race, gender and national origin impact their credit score, then there is little incentive to make changes with things that truly do make a difference, like paying bills on time,” said Jason Alderman, Senior Director of Global Financial Education, Visa Inc.
The Fair Isaac Corporation provides the bulk of the credit scores lenders use to determine a potential borrower’s credit worthiness. The FICO score is based 35 percent on the borrower’s payment history, 30 percent on the credit utilization, 15 percent on the length of credit history, and 10 percent on recent credit inquiries.
Too many credit inquires can injure a credit score, but not as much as a late payment. An excessive amount of outstanding revolving debt can also harm the score.
Some people believed race and employment played a role. 59.9 percent of the survey participants thought employment history played a role while 58.7 percent thought the interest rate on their current debt affected their overall credit score. Neither are true.
“Credit scores are the equivalent of our financial grade point average,” said Alderman. “Understanding your credit score is vital so that you can take steps to improve it. Not checking your score at least once a year is like driving with your eyes closed – you are risking a financial collision.”
By: Tim Edwards