Almost 8 in 10 don’t know bad credit’s effects

We all know credit is important, but how many of us really understand exactly how important it is—and why? According to the Consumer Finance Protection Bureau, more than half of Americans say they never check their credit scores, so it would not be surprising to learn that many also don’t realize how those credit scores really work.

To get a better idea of how much the average person knows about credit, we asked 1,000 people to correctly identify which of six different items can be impacted by credit score. We included four correct answers (lease and loan applications, insurance rates, security deposit amounts and job applications) as well as two false ones (tax refunds and passport and visa applications). 

Here’s how our survey respondents performed:

78% don’t realize credit score can affect job applications

A shockingly high 78 percent did not select job applications as one of the things that can be impacted by a bad credit score. But it’s true: hiring managers can elect to run an employment credit check when considering a potential hire to ensure the applicant has a history of responsible borrowing. 

In fact, a 2018 survey by the National Association of Professional Background Screeners found that 95 percent of employers ran some sort of background check on job applicants, and nearly a third of those employers ran credit checks on at least some applicants.

Employment credit reports give employers access to a record of an applicant’s accrued debts—everything from credit card debt to mortgages and student loans—as well as payment history on those debts. However, these credit reports don’t include the applicant’s numerical credit score.

Fewer than 1 in 3 know credit affects security deposits or insurance rates

Not only does credit impact insurance rates, but insurance companies actually calculate their own metric called an insurance score, which is a rating that represents the likelihood that an individual will file a claim while under coverage. The top factor used to determine insurance score? Credit history.

And yet, just 29 percent of our survey respondents reported being aware that credit affects insurance rates.

At just 24 percent, even fewer of our respondents were aware that credit can determine the amount required for a security deposit (or even whether a deposit is required at all). Most people know that landlords typically require a certain minimum credit score to be approved for a lease, but it can be more complicated than that. If you have a lower credit score but a high income, landlords may make an exception and approve you—with the added condition of a higher security deposit.

46% are more confident than average in their credit score knowledge

We also ran a second poll asking 1,000 respondents how confident they are in their knowledge of how bad credit works. An impressive 46 percent reported that they feel more confident than average in their credit knowledge.

Given that fewer than 30 percent of our respondents reported knowing that credit can influence insurance rates, security deposits and job applications, these results suggest that many people are overconfident in their credit knowledge.

A quarter of respondents said they felt average confidence in their credit knowledge. Just under 29 percent said they were “not very” confident or had zero confidence in their credit knowledge.

The good news for those with less confidence in their credit knowledge is that it’s never too late to catch up. You may feel confident in how credit scores are calculated, but feel less sure of what that credit score means. Or perhaps you know how you earned your credit score, but are unsure of how to improve it. Regardless of where the gaps in your credit knowledge lie, taking the time to improve your credit education is always worth it.

Of course, you may find that digging into your credit history reveals some items that require professional help to fix or improve. In that case, a credit consultant can help you design a plan tailored to your needs. No matter what your personal credit struggles are, there’s always a path to financial health. The most important part is taking the first step.

Methodology

This study was conducted for Lexington Law using Google Consumer Surveys. The sample consisted of no less than 1,000 completed responses per question. Post-stratification weighting has been applied to ensure an accurate and reliable representation of the total population. This survey was conducted in March 2020.