Credit Myths, Busted: TransUnion Tackles Credit Confusion in Annual Survey
Global risk and information solutions provider TransUnion® (NYSE: TRU) released its third annual credit literacy survey today, exploring the state of U.S. consumer credit knowledge.
The 2017 Myths vs. Facts Survey revealed consumers remain misinformed about many fundamental aspects of credit scoring, reporting and building, and lack basic information about the factors that impact a credit score.
With the average VantageScore hovering at 645 in the United States, according to data from TransUnion’s proprietary consumer credit database, the findings of the survey underscore the importance of continued credit education.
Making credit education accessible for all consumers is one of our top priorities. In general Americans should invest more time and energy into managing their credit. I can’t overstate the importance of good credit. There are so many stories out there of people who have struggled to make ends meet because they made mistakes that damaged their credit early in life. Our goal is to prevent that by eliminating credit confusion through ongoing education.
The 2017 findings explore the most common credit questions received by the TransUnion consumer relations team and debunks six of the most pervasive myths about credit.
Myth #1: Closing a credit account is bad for your credit score.
More than one-third (35 percent) of consumers believe closing a credit card account decreases a credit score, and another 20 percent say they have no idea what effect it would have.
The truth is, the impact of closing a credit card account varies based on the percentage of available credit the card provides and the length of credit history associated with the account. If the card represents a small amount of available credit or has a short credit history, the closing may have minimal or even no impact on a credit score. However, if the card in question has a consumer’s longest credit history, or if it represents a large portion of their available credit, it may have a negative impact.
Consumers should weigh all of those factors before closing a credit card account.
Myth #2: Activating a credit freeze or credit lock will prevent lenders from accessing your credit report from all three credit report agencies at once.
There are three major U.S. credit reporting bureaus and each has a credit report for all credit-active consumers in the country. A lot of experts encourage consumers to freeze or lock their credit reports when they are not using them to help protect against fraudulent activity.
When asked, nearly half (48 percent) of respondents said they believe it’s possible to protect all of their credit reports at once, but the fact is that there is no one tool that protects all three credit reports at once.
In June of this year, however, TransUnion and Equifax announced Multi-Bureau Lock, the first-ever joint credit protection offering, which allows customers to lock or unlock both their TransUnion and Equifax credit reports simultaneously to protect from fraudulent activity and identity theft.
Myth #3: Credit reports include marital status.
Close to half (44 percent) of all consumers still don’t know this basic fact - marital status isn’t on a credit report. Consumers ages 55 and up were the most likely to get this wrong, with more than half (51 percent) believing marital status is factored into credit reports.
While marital status does not appear on a credit report, credit still plays an important role in couples’ lives, particularly if they want to finance joint purchases like a house or car. Couples shopping together should keep in mind that the individual with the lower credit score in any couple can dictate lending terms or even loan approval rate for the pair, if they are applying jointly.
Myth #4: Credit scores impact your ability to travel internationally.
Some consumers (31 percent) are still confused about whether or not healthy credit is required to enter a foreign country. It’s not.
Travelers may find credit beneficial if they want to use a credit card to finance their international trips. And, of course, it’s crucial for consumers to pay off any financial obligations from their vacation on time and in the full amount to avoid damaging their credit score. But the mere ability to travel from one country to another does not require healthy credit.
Myth #5: Checking your own credit is bad for your credit score.
Forty-three percent of consumers think checking your own credit score has the same effect as when a lender checks it. In reality, there’s a big difference between the two types of credit checks.
Soft inquiries – when a consumer checks his or her own credit – doesn’t impact their credit score. In fact, regular credit monitoring is crucial for credit health and helps ensure information is accurate and up to date. It’s the hard inquiries – when a lender checks a consumer’s score to determine credit approval – that impact scores, and can stay on a person’s credit report for up to two years.
Myth #6: Late payments like utility bills are always included in credit scores.
This is another tricky one: not all utility payments are reported to credit reporting agencies, so the impact on credit scores varies. For example, some utility companies report both on-time and late payments, whereas others only report late payments or ones that have gone into collections. So the 51 percent of survey respondents who said utility payments are included in their score are only correct in some instances.
Timely repayment of financial obligations is one of the cornerstones of credit health, which is why it’s so crucial to ensure the payment of all outstanding charges on time and in the full amount each month. Even small utility bills, if not paid, can damage a credit score.
For more information about credit myths and facts, or to sign up for tools to help manage your credit, visit TransUnion’s website.
About the Survey
The online survey includes responses from 1,002 U.S. consumers age 18 and older. The survey was conducted between June 1, 2017 and June 6, 2017.
About TransUnion’s Proprietary Data
TransUnion’s proprietary data queries are pulled from its database of hundreds of millions of credit-active consumers. The information in this report is based on a March 2017 analysis of the credit and debt behaviors of a random sample of 15 million consumers in that database.
Information is a powerful thing. At TransUnion, we realize that. We are dedicated to finding innovative ways information can be used to help individuals make better and smarter decisions. We help uncover unique stories, trends and insights behind each data point, using historical information as well as alternative data sources. This allows a variety of markets and businesses to better manage risk and consumers to better manage their credit, personal information and identity. Today, TransUnion has a global presence in more than 30 countries and a leading presence in several international markets across North America, Africa, Latin America and Asia. Through the power of information, TransUnion is working to build stronger economies and families and safer communities worldwide.
We call this Information for Good. transunion.com