Despite its importance in our daily lives, credit remains a mystery to many Americans. So we put them to the test.
MoneyTips conducted an exclusive online credit quiz in June of 410 people. Besides the fact that nearly 3 in 10 admitted not knowing their credit score, only one-quarter (25.6%) could answer four multiple-choice questions about credit basics correctly.
The first question we asked was:
700 was the proper choice, which 3 out of 4 respondents knew. But 29.5% of the respondents younger than 30 picked the wrong answer, with most of them guessing 1000. (Most credit scales top out at 850). Things got interesting when we looked at stated income. It seems the people with the lowest incomes and the highest incomes were most likely to get this wrong. Nearly 4 out of 10 people who earned less than $30,000 (37.3%) or more than $200,000 annually (38.5%) didn't know the answer.
For the easiest question:
Only 19.8% got this wrong, or less than 1 out of 5. But once again, the highest and lowest earners performed the worst among income brackets. 30.8% of those earning more than $200,000 annually and 27.5% of those earning less than $30,000 didn't know the answer. You can see your credit score and credit report for free within minutes using Credit Manager by MoneyTips.
This question was the hardest to answer, but yielded similar results. Overall, 45.1% of respondents got it wrong with most underestimating the cost of bad credit. The income brackets that got it wrong the most were once again the highest (69.2%) and the lowest (51.0%). Over half (51.3%) of the group under 30 missed the question, but they were still better than the 70+ group, of which 69.2% answered incorrectly.
While 36.3% were wrong overall, over half (54.9%) of the lowest-income respondents didn't know about this important concept. The worst performing age group was the youngest; 42.3% of the people under 30 answered incorrectly.
Here's the breakdown of how many questions people answered correctly.
While the average person got 2.73 questions correct, the worst performing income levels were the lowest (2.29) and the highest (2.31). Remarked Marc Diana, CEO of MoneyTips, "It's surprising that the highest earners performed nearly as poorly as the lowest earners. While the young and low-income people need to learn about credit for a chance to raise their standard of living, perhaps the high-income people haven't historically been declined opportunities due to credit. I'm certain that has changed since the financial challenges of 2008."
Remarked National Financial Educators Founder and Chief Education Officer Adam Carroll, "No matter your income level, knowing your credit score, as well as how late payments and credit limit overages impact your score is critical. For borrowers with significant debts, even a marginally lower score can result in thousands, tens of thousands, or hundreds of thousands of dollars of extra interest paid over their lifetime."