A borrower’s credit score can make or break a lender’s decision on whether or not to approve a mortgage loan. Yet many consumers do not understand the basics of their credit scores, wrongly believing that many factors that are not reported to credit bureaus will negatively affect their score.
A recent survey indicates that many consumers are confused when it comes to the basic components of their credit score. The second annual survey, conducted by TransUnion with responses from 1,615 U.S. consumers age 18 and older, found that more than half of consumers who checked their score in the previous 30 days mistakenly believed that salary, employment history, and age were factors in calculating a credit score.
The survey also found that consumers who regularly check their credit score incorrectly believed that salary raises (54 percent) and adding to personal savings (33 percent) had a positive effect on credit score, when in fact they have no effect. Not only that, but the myth that salary affects credit score seems to be growing; in last year’s survey, only 47 percent of respondents said they believe a higher salary equates to a higher credit score, compared with 54 percent this year.
“Checking your credit score is an important component of financial responsibility, but consumers should do more,” said John Danaher, president of TransUnion Consumer Interactive. “Our survey shows that even those who monitor their credit are only skimming the surface of their credit report and often don’t understand the factors that comprise their credit score.”
The survey also found a sharp contrast in the way different age demographics perceive the effect of credit inquiries on their credit scores. Seventy percent of millennials, ages 18 to 34, said they had checked their credit score in the past year—but 30 percent of those who had checked it wrongly believed that doing so would negatively affect their score. By comparison, only 21 percent of gen X respondents and 15 percent of baby boomer respondents incorrectly believed that checking their credit score result in a lower score.