Credit reports still a mystery, GAO finds

While consumers are very aware of credit reports and scores, many don't understand factors that negatively impact their financial report cards, according to a report issued by Congress Wednesday.

Most consumers don't know their scores can be used for insurance or employment decisions, the report also says, and a scant 6 percent of consumers know the Federal Trade Commission is the agency to turn to if they have a run-in with the credit reporting agencies.

The report also found that Hispanics understand their credit rights far less than whites or blacks.

The report, "Credit Reporting Literacy: Consumers Understood the Basics but Could Benefit from Targeted Educational Efforts," was issued late Wednesday by the General Accounting Office. It was mandated by the 2003 FACT Act, best known to consumers as the law which gave them a free copy of their credit report every year. Consumers were surveyed last year, before free credit reports took effect.

"At some level we were pleasantly surpassed that people had a general notion about credit reports," said Richard Hillman, one of the study's authors.  "But their awareness levels quickly dropped off," when asked more specific questions about their credit reports, he said, such as how long negative information remains on a credit report, or how the dispute process works.  Only half knew that using all their available credit -- being close to the credit limit on several credit cards -- lowered their credit score.  And nearly three-quarters didn't know that credit reporting agencies must investigate disputed items for free.

Most don't know credit scores used by other industries
Consumers were well-versed in the idea that credit scores and reports might impact the interest rate they pay on a home mortgage. But less than half know low scores can adversely impact their auto insurance rates, and only 33 percent know credit histories can play a factor in employment decisions.

Those results didn't surprise Liz Pulliam Weston, author of "Your Credit Score" and an MSN Money columnist.  She says many consumers have yet to realize that credit scores are used for much more than financing decisions.

"Every time I write about it I get a ton of e-mail from people saying they are outraged," she said. "We need to drive home the point. The importance of credit scores should be taught in high school, so people know the financial decisions you make might mean you will not get that job or that apartment."

The GAO study revealed a wide disparity of knowledge surrounding credit issues related to education level and experience in the credit industry.  Those without a high school education, or who had never borrowed money to purchase a car or home, were much less likely to be aware of credit reporting intricacies and rights.

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