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4 Things you need to know about credit scores: what millennials don't know can hurt their finances.

THERE ARE PLENTY OF THINGS MILLENNIALS ARE EXPECTED TO KNOW: how to use the latest technology, innovative ways to solve problems, the best angle for a selfie, even. But one study has just revealed that when it comes to credit scores, there's a lot the current generation still needs to learn.

The Consumer Federation of America and VantageScore Solutions L.L.C. recently unveiled their fourth annual survey on consumers' understanding of credit scores. The survey focuses on consumer knowledge of credit scores depending on demographics such as age and access to credit reports. The study finds that millennials (those between the ages of 18 and 34) know less about credit scoring than older credit card holders. For example, they know less about which businesses use credit scores. They also know less about who collects information on which the scores are based. In addition, many younger card holders are more likely to think credit repair companies can always or can usually be useful in correcting errors and improving scores.

"The primary reason millennials know so little about credit scoring is that they had no exposure to it during the first 18 to 21 years of their lives. You don't learn about credit scoring or credit reporting at any level of academia. And even after they've started building and using credit, the exposure to reputable and reliable information about credit scoring is very limited," says John Ulzheimer, president of Consumer Education at

The Consumer Federation of America says a key reason for their lack of knowledge could be that millennials are less likely than older Americans to have obtained their free credit reports (49% vs. 74%). Consequently, they are less informed about how credit scores and reports actually work.

(1) If you're searching for answers about credit scoring, here are four things you need to know:

It's not just credit card issuers that use your credit score.

When asked which of six types of businesses (from credit card issuers to landlords to cellphone companies) might use credit scores, only 18% of millennials, compared with 32% of older consumers, correctly identified all six. In addition to credit card companies, credit scores are used by utility companies, cellphone companies, home insurers, landlords, and mortgage lenders.

"Most people realize credit card companies and auto lenders use credit scores but they don't realize they are also often used to determine homeowner or auto insurance discounts, or to determine whether a deposit will be required when they get cable or a cellphone," says credit expert Gerri Detweiler.
Who Uses Credit Scores?

Only 18% of millenials correctly chose who uses credit
scores, compared to 33% of other adults polled.

                     Milleninials     Age 35 & older
                    (under age 35)

Electric utility         22%                19%
Cellphone company        41%                30%
Home insurer             50%                35%
Landlord                 50%                39%
Credit card issuer       72%                55%
Mortgage lender          69%                55%
All of these
  (correct response)     18%                33%


Note: Table made from bar graph.

(2) Your age is not a factor in determining your credit score.

Less than half (47%) of millennials (compared with more than 60% of those 45 to 64 years of age) know that age is not used in calculating credit scores.

There are actually five main factors that affect your score.


Your payment history.

This category indicates what your bill-paying habits are like. It will reveal things like whether or not you have ever been late.


How much you owe.

This category looks at the total amount you owe on all accounts and how much you owe on different types of accounts such as credit card, auto loan, and mortgage accounts.


How long you have had credit.

Generally, the longer you have had credit, the better. The average consumer's oldest account is about 14 years old.


Your last credit application.

If you apply for a large amount of credit in a short amount of time and you don't have a long credit history, lenders may get the message that you're searching for money to borrow.


The type of credit you use.

Lenders want to see consumers with a variety of credit. The highest scores go to consumers who have both revolving accounts like credit cards and installment accounts like a car loan or a mortgage.

"Some people worry that their young--or old--age counts against them when they apply for credit, but that's not true. However, the fact that most young people don't have a long-established credit history can hurt their scores. And older people who have no debt and pay cash for almost everything are often shocked to learn they don't have strong credit scores. Generally, creditors can't discriminate against someone because of their age. Under the Equal Credit Opportunity Act, the age of someone 62 or older can't be a negative factor, but it can be a positive factor," says Detweiler.

(3) There are three main credit bureaus, and they all collect information used for your score.

Less than two-thirds (65%) of millennials but three-quarters (75%) of older adults know that three main credit bureaus collect information on which credit scores are based. They are Equifax, Transunion, and Experian.

(4) Most of the time, credit repair companies can't repair your credit.

Half of millennials but nearly three-fifths (59%) of those 45 to 64 years of age know that credit repair companies are either never or only occasionally helpful in correcting credit report errors and improving credit scores. If a negative mark on your credit report is accurate and is still within the statute of limitations, it cannot be removed from your credit report.

"A credit repair company is any company that provides services that are designed to help you improve your credit reports or credit scores, for a fee. It is true that a credit repair company cannot guarantee the removal of accurate derogatory information, which they must clearly disclose prior to providing services. And while credit repair companies have had a hard time shaking their bad reputation, there are legitimate players," says Ulzheimer.
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Author:Ngo, Sheiresa
Publication:Black Enterprise
Geographic Code:1USA
Date:Jul 1, 2014
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