How Much Do Americans Really Know About Credit?

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November 14, 2016


The more you know about how banks decide whether to give you a loan and at what rate, the easier it will be for you to take the actions that make you seem as more creditworthy. Credit Karma has spent the last nine years sharing information with Americans about their individual credit scores and the rules that determine those magic numbers.

To test how well we have done – and how much work we still need to do – we invited more than 1,000 of our more than 60 million members to take a quiz designed by our own Chief Consumer Advocate, Bethy Hardeman, to see how many understood how credit works.

On average, respondents did pretty well. More than half got all of the questions right. But test takers seemed to be clearer on some concepts than others. Feel free to play along at home as knowing the right answer to some of these common misconceptions could save you a lot of pain later.


Conscious Cosigning: Almost everyone (96%) who took the test understood that cosigning meant taking responsibility for making sure the loan is repaid. In this April article, we shared some of the issues to consider before co-signing a loan, regardless of who is asking.

A Variety of Scores: Most (94%) also understood that everyone has more than one credit score. Different credit agencies use different calculations for different uses. There is no one “official” score. Bethy captured some of the history surrounding how all these credit scores came to be in this Credit 101 gem from the archive.

Collections Linger: Almost as many people (93%) knew that paying off a collections account does not automatically remove it from a credit report. Collections accounts can remain on a credit report for up to seven years, paid or not. Resolving collections could still benefit credit health, however.

The Power of Open Accounts: Nearly nine-in-ten people (89%) were aware that closing unused cards was not always in their best interest. It’s usually best to keep all credit cards open, active and on-time. Closing an account could raise credit utilization rates and drop a credit score. Bethy covered the pros and cons of keeping accounts open and a couple of bonus misunderstood credit issues in an eye-opening article last year.


Married, but Separate Scores: It was also widely known by respondents (88%) that even when couples marry, they do not share credit scores. Each person’s score is based on individual history. This article addresses some other common credit myths about coupling


Safe Self-Checking: A supermajority (85%) also answered correctly that checking their own credit score would not affect their rate. That is considered a soft inquiry (as opposed to a hard inquiry from a bank). Bethy explained about the difference between those two credit actions as well.

Income not Included: One in five were under the mistaken impression that annual income is one of the factors included in a credit report impacting a credit score. Some lenders will request income information and consider debt-to-income ratios in decision making, but it is not included in a credit score.


No Balance Needed: The fact that you don’t have to carry a balance on your credit card from month-to-month to build your credit rating is one of the top three most misunderstood items in the quiz. One in three respondents didn’t realize that while it is important to use a credit card, you get the value even if you pay it off. Plus you enjoy the bonus of having lower usage rates. This article explained that there is no need to pay unnecessary interest to maintain an Excellent credit rating along with four other myths.

Less is Not More: One in three respondents didn’t understand that having a healthy variety of credit accounts can add to on-time payment history and help your credit.


Reporting Not Required: The most misunderstood fact about credit in this quiz was the relationship between lenders and the credit bureaus. More than 40% of respondents thought lenders were required to report accounts to all three major credit bureaus. Most will, but there are no legal obligations and the amount of time it takes to do so can vary as you can read in this article.

Methodology: The week of July 11, 2016, Credit Karma surveyed 1,016 members, asking them to answer ten financial literacy questions. All data was aggregated and anonymized.