Half of Americans have no clue how to identify a good credit score

Many Americans have a love-hate relationship with their credit cards — and for half, their credit cards are their lifesavers, according to new research.

A survey of 2,000 people with poor, no, or unknown credit found that most struggled with managing their finances when they first moved out on their own (56%), and nearly three in five said that one of the toughest parts of becoming an adult was learning about how credit works (58%).

Results also showed that two in five don’t think there are enough resources available to them to help learn about credit (41%) and more than half of respondents said they wish they had a handbook they could reference to help answer questions about credit (58%).

Conducted by OnePoll on behalf of Oportun, the survey found that instead, people are most likely to get information about credit from the internet (52%) or banks (37%).

And although 35% prefer to get their information straight from the source — credit card companies — most people think the companies overcomplicate credit by using jargon or fine-print limitations (59%).

Despite the average person having two credit cards open right now, nearly a quarter of Americans think that credit card companies don’t make it easy to open a new card, either (24%).

The most popular reasons people were denied a credit card include not having enough credit history (35%), having too much debt (35%) or not having enough income (34%).

“We estimate there are 100 million people in the U.S. who are effectively locked out of the financial mainstream because they either don’t have a credit score or have been mis-scored by the major bureaus. For many people, this is a maddening Catch-22: how do I build credit when no one will loan me money to build credit with?” said Matt Jenkins, chief operating officer and general manager of personal loans at Oportun. “The good news is that some lenders now use technology and alternative data to make responsible credit available to people without a score.”

Aside from trying to open credit cards frequently, results also showed that other habits at play might affect Americans’ credit scores.

Those with credit cards have taken an average of two cash advances, which is likely to pull their score down a bit.

One in five don’t make payments to their credit card every month (21%) and 43% only opt to pay the minimum amount due.

Surprisingly, nearly a quarter of those with credit cards admitted they pay less than the minimum amount due or make no payment at all (24%).

And many don’t realize that when you pay matters, too; people who have credit cards have made about two late payments to their credit cards within the last year.

Perhaps one of the most detrimental mistakes that 39% of people with credit cards are unaware of is having credit card debt over 30% of their credit line.

More than two in five have difficulty keeping track of the credit cards they own (44%), and a similar amount admits that they’re so much in debt that they don’t even know where to begin to pay it off (41%).

And despite 54% feeling confident in understanding how to build their credit, the survey showed that people fall for credit myths all the time.

Half of Americans incorrectly identified credit scores under 670 as having “good credit.”

Nearly one in four still think checking their credit report will lower their credit score (24%) and another 18% believe closing a credit card will increase their credit score when the exact opposite is true.

One in five believe that as long as their debt is paid off, their negative history, including late or missed payments, will be erased (21%), and the same amount is misinformed that credit scores are the only thing that lenders consider.

“A credit score impacts more than how much you pay in interest; it can also determine the kinds of employment you can hold, where you can live, and more,” said Jenkins. “Consumers who find themselves with no or low credit should seek responsible lenders, those with APRs below 36% who will report their payments to the credit bureaus. By making their payments on time and in full, consumers can quickly start to build the good credit scores they deserve and that will open new pathways to better financial outcomes.”

MOST POPULAR CREDIT MYTHS PEOPLE BELIEVE

1. Any debt is bad debt - 35%
2. Checking your credit report will lower your credit score - 24%
3. Paying off debt erases negative history (late payments, missed payments, etc.) - 21%
4. Credit scores are the only thing that lenders consider - 21%
5. Closing a credit card will increase your credit score - 18%