Credit Reporting Literacy: Consumers Understood the Basics but Could Benefit from Targeted Educational Efforts
Published: 2005-03-16T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: This report responds to a mandate in the Fair and Accurate Credit Transactions Act (FACT Act) of 2003 requiring GAO to assess consumers' understanding of credit reporting. The FACT Act, among other things, extended provisions governing the credit reporting system and addressed ongoing concerns about inaccuracies in credit reports. For example, the act expanded access to credit information by entitling consumers to one free credit report each year. It also established the Financial Literacy and Education Commission (FLEC) to improve consumers' understanding of credit issues. This report examines consumers' understanding and use of credit reports and scores and the dispute process and looks at factors that may influence their understanding of credit reporting.
section_title: What GAO Found
paragraphs: Based on survey responses for a national sample of 1,578 consumers, GAO found that consumers understood the basics of credit reporting and the dispute process. For example, many consumers understood what a credit report contained and the sources of this information, and about 60 percent had seen their credit reports. However, many consumers did not know more detailed information, such as how long items remained on their credit reports or the impact their credit history could have on insurance rates and potential employment. Further, most consumers knew what a credit score was, and approximately one-third had obtained their credit scores, but many did not know that some behaviors--such as using all their available credit--could negatively affect their scores. Similarly, GAO found that most consumers knew they had the right to dispute information on their credit reports, and a small percentage (18 percent) had disputed inaccuracies. But most consumers did not fully understand their rights in the dispute process--for example, that there is no cost to dispute inaccurate information or that they could contact the Federal Trade Commission, the federal agency primarily responsible for enforcing consumers' rights with respect to credit reporting agencies (CRAs), if they could not resolve a dispute with the CRAs. GAO also found that several factors were associated with consumers' knowledge. For instance, having less education, lower incomes, and less experience obtaining credit were associated with lower survey scores, while having certain types of credit experiences--such as an automobile loan or a mortgage--were associated with higher scores. Other factors, such as gender and living in a state where credit reports were free prior to the FACT Act, did not have a significant effect on consumers' knowledge. Educational efforts could potentially increase consumers' understanding of the credit reporting process. These efforts should target those areas in which consumers' knowledge was weakest and those subpopulations that did not score as well on GAO's survey.

section_title: Letter
paragraphs: Credit reports detailing personal credit histories and the credit scores  derived from these reports affect many aspects of consumers’ lives. Both  credit reports and credit scores can influence lenders’ decisions to grant  credit and may affect individuals’ ability to obtain jobs, insurance, and  rental housing. They can also affect interest rates offered on automobile,  mortgage, and other consumer loans. For example, having a low credit  score could add almost $370 dollars to a monthly mortgage payment on a  30-year home mortgage of $150,000 compared with a payment calculated  using a higher credit score. Because of the importance of credit reports  and credit scores, consumers need to know and understand what their  reports contain, and many credit experts suggest that it is prudent practice  for consumers to check the accuracy and completeness of their credit  report information periodically.
As GAO has previously reported, inaccurate credit report data could have  important implications for both consumers and creditors in today’s  sophisticated credit markets. Equifax, Experian, and TransUnion—the  three national credit reporting agencies (CRAs)—each maintain an  estimated 200 million credit files and enter more than 4 billion pieces of  data into these files monthly. While CRAs take measures to minimize  errors in data files, the volume of data they handle increases the possibility  of inaccuracies on credit reports. Further, personal credit histories can be  damaged by identity theft—the use of another person’s identity to obtain  credit cards, access bank accounts, and commit other fraudulent acts.  Identity theft is considered a fast-growing, white-collar crime and poses a  direct threat to the accuracy and integrity of credit report data.
CRAs have been subject to specific federal regulation since the passage of  the Fair Credit Reporting Act (FCRA) in 1970. FCRA gave the Federal  Trade Commission (FTC) responsibility for enforcing CRAs’ compliance  with the act. In December 2003, the Fair and Accurate Credit Transactions  Act (FACT Act) was enacted, which amended FCRA. Among other things,  the act included provisions to improve the accuracy of personal  information assembled by CRAs and better provide for the fair use of and  consumer access to such information. In addition, the act created the  Financial Literacy and Education Commission (FLEC) to improve financial  literacy and education through the development of a national strategy, a  Web site, and a toll-free hotline and designated the Secretary of the Treasury as the chairperson of FLEC. The act directs FLEC to emphasize  basic personal income and household money management and planning  skills, including increased awareness of the importance of (1) credit  reports and credit scores in obtaining credit and on the terms of credit, (2)  accuracy in credit reports and scores, (3) correcting inaccuracies, and (4)  the effects common financial decisions can have on credit scores. In  addition, Congress mandated that the Secretary of the Treasury, after  reviewing FLEC’s recommendations, implement and conduct a national  public service multimedia campaign to improve financial literacy and to  publicize FLEC’s Web site and toll-free hotline. The FACT Act also  mandated that GAO evaluate consumers’ knowledge and experience with  credit reporting. As agreed with your offices, this report responds to the  FACT Act mandate by examining the extent to which consumers (1)  understand and review their credit reports, (2) understand and review their  credit scores, and (3) know how to dispute information on their credit  reports and actually do so. This report also discusses some of the factors  that are associated with consumers’ understanding of these issues.
To meet these objectives, we contracted with a survey research firm to  conduct a telephone survey of randomly selected adults in the United  States. We designed the survey questions to assess respondents’ knowledge  of and experience with credit reports, credit scores, and the dispute  resolution process. This effort resulted in 1,578 completed interviews, with  a response rate of 48 percent and a cooperation rate of 59 percent (see appendix I for a discussion of response rates). The survey was conducted  in both English and Spanish. The results can be generalized to the  population of U.S. adults aged 18 and older, and we refer to respondents as  “consumers” throughout the report. The survey fieldwork was conducted  from late July to early October 2004. Using the survey results, we applied  two methodologies—cross-tabulations and regression—to analyze the  effects that selected factors, such as specific experiences and demographic  factors, had on credit reporting knowledge. The results of the two methods  were generally consistent with one another. Appendix IV discusses the  results of the cross-tabulations analysis and appendix V discusses the  regression analysis results.
In developing the survey questions and to provide context, we conducted a  literature search to identify other surveys and documents related to credit  reporting issues. Appendix III contains our review of selected findings from  other studies. In addition to our review, we interviewed members of FLEC,  including officials from the federal financial regulatory agencies, FTC, the  Department of the Treasury, and other relevant federal agencies. We also  met with industry organizations, including furnishers of consumer credit  data, the three nationwide CRAs, and consumer advocacy groups that  educate and inform consumers on credit issues and the law. We discussed  and collected data from these officials on consumers’ knowledge of credit  reports, credit scores, and the dispute resolution process and other  credit-related issues. We used this information for comparative and  background purposes only and did not verify its accuracy. Appendix I  contains additional details on our scope and methodology, and appendix II  reproduces a copy of our survey with the frequency of responses by  question. In addition, an electronic appendix (app. VI) including additional  subgroup results can be found on GAO’s Web site at http://www.gao.gov/  cgi-bin/getrpt?GAO-05-411SP. We conducted our review from March 2004  through February 2005 in accordance with generally accepted government  auditing standards.
subsections: section_title: Background
paragraphs: CRAs are private sector companies that receive information from  businesses that offer credit and from other sources and compile this  information into credit reports that are sold for a fee to consumers and  other businesses. The U.S. credit reporting system is voluntary, as federal  law does not require lenders and other creditors to report to CRAs.  Creditors may report consumer information to one, all, or none of the  CRAs, and information on individual consumers may differ among the  three agencies. Lenders rely on credit reports when deciding whether to  offer credit to an individual, at what rate and on what terms. In addition, a  growing number of decisionmakers, including potential employers,  insurance underwriters, and landlords are using credit reports to assess  applicants’ creditworthiness.
The credit reports the CRAs provide generally contain certain standard  information, including:  Credit histories that list consumers’ experiences with credit and credit  behavior—for example, any loans and credit cards on record and  payment histories for each;  Identifying information such as names, addresses, Social Security  numbers, and employment data (other than salary);  Information related to monetary transactions that is a matter of public  record, such as tax liens (claims against property for unpaid taxes),  debt-related judgments or court orders, and bankruptcies; and  Inquiries made by others—for instance, mortgage lenders or  banks—about consumers’ credit histories.
In addition to compiling credit reports, CRAs also calculate credit scores,  which attempt to predict the likelihood that a person will repay a loan.  Credit scores, which help creditors analyze information in credit reports  and make decisions on granting credit, are derived using a mathematical  model that takes into account the information contained in the reports. In  the 1950s, Fair Isaac Corporation developed one of the first mathematical  models for scoring credit applications. Before credit scores became  widely available, lenders or credit examiners would evaluate information in  credit reports to decide whether or not to grant credit. Over time, credit  scores were viewed as a more efficient and consistent method for  evaluating information in credit reports, and by the early 1990s all three  nationwide CRAs had begun selling them to businesses along with credit  reports.
In 1970, Congress enacted FCRA—the primary federal legislation  governing the content and use of credit reports and the credit reporting  industry in general. The act contained several important measures. For  instance, FCRA:  Provided a uniform basis for consumers’ access to information in their  credit reports at a reasonable charge; Subject to certain exceptions, prohibited CRAs from reporting specific  types of negative information that was older than 7 years; Required CRAs to identify for consumers, on request, sources of credit  report information and the names of those receiving a credit report  within the time periods specified in the act;   Required CRAs to provide free reports to any consumer who requested a  copy of a report following an adverse action, such as failure to obtain  credit, insurance, or employment, within a month of the action; and  Required CRAs to implement a dispute resolution process to investigate  and correct errors and to remove information found to be erroneous.
The dispute resolution process established in FCRA required CRAs to  investigate within a reasonable period of time items that consumers  reported as inaccurate or incomplete. CRAs were required to delete  promptly any disputed data that they could not verify within that period.  For unresolved disputes, FCRA allowed consumers to add a brief  explanatory statement to their credit files. When information was not  deleted, CRAs were required to note the dispute in subsequent reports  containing the information in question and include the consumer’s  statement or a clear summary of it. In addition, the act required CRAs, upon  the consumer’s request, to notify those who received the reports that  information had been deleted or that the consumer had filed a dispute  statement. Finally, FCRA gave FTC responsibility for enforcing CRA’s  compliance with the act to the extent that this authority did not overlap the  authority of other federal agencies specified in the act.
Despite the consumer protections FCRA offered, starting in the late 1980s  consumers began raising new concerns about credit reports and CRAs. For  example, consumers maintained that CRAs were not responding to  consumers’ requests for assistance. In addition, lawsuits were brought  against the three CRAs on issues related to accuracy. In 1996, Congress  amended FCRA. Among other things, the 1996 amendments required  CRAs to provide consumers, upon request, with access to all information in  their credit files (except credit scores) at a cost not to exceed $8.00,  improved the process for investigating disputed information, and permitted  use of credit reports only for certain purposes, such as solicitations for  credit and insurance. The time period for investigations of a dispute was  narrowed from a “reasonable period of time” to, in general, 30 days, and  CRAs were required to conduct investigations at no cost to the consumer.  The 1996 amendments also added the definition of an “adverse action” and  gave consumers access to a free credit report each year if they were  unemployed but intended to seek employment, were on public assistance,  or suspected that a credit report contained inaccurate information due to  fraud.
To extend the expiring FCRA preemption provisions and address  continuing concerns about inaccuracies in reports, identity theft, and other  matters, Congress passed the Fair and Accurate Credit Transactions Act of  2003 (the FACT Act), which amended FCRA. Had the provisions expired,  states generally could have enacted laws covering matters that had been  governed exclusively by FCRA. Industry participants and others believed  that national standards and uniformity of credit information were key to  maintaining efficiency in credit markets and that the loss of federal  preemption in those areas that had been exclusively subject to FCRA  would threaten this efficiency. Among other things, the amendments:  Expanded consumers’ access to credit information and sought to  promote accuracy within credit reports by, among other things, entitling  consumers in all states to one free credit report each year from each of  the three CRAs. However, according to FTC, seven states already  allowed consumers at least one free copy annually (Colorado, Georgia,  Maine, Maryland, Massachusetts, New Jersey, and Vermont);”
Expanded creditors’ responsibilities for furnishing accurate data. The  FACT Act mandated that the federal banking agencies, National Credit  Union Association (NCUA), and FTC issue joint regulations identifying  the circumstances under which furnishers of information would be  required to investigate the accuracy of information in a credit report  when asked to do so by a consumer;   Established a regulatory scheme under which creditors were required to  notify consumers when information from credit reports negatively  affected the terms of credit, such as interest rates on credit cards and  loans. The notification would also have to inform potential borrowers  that they could obtain a copy of their credit report from the CRA,  without charge; and   Strengthened victims’ rights with respect to identity theft, made credit  history restoration easier, limited the sharing and use of medical  information within the financial system, required mortgage lenders to  disclose credit scores to applicants, and required CRAs to offer credit  scores to consumers for a reasonable fee.
Finally, as we have noted, the FACT Act created FLEC to improve financial  literacy and education and, among other things, required FLEC to increase  consumers’ awareness and understanding of credit reports and scores.  Several public and private entities had already undertaken and continue to  operate initiatives to increase consumers’ knowledge of credit reporting  issues. Within the federal government, a number of agencies sponsor  financial literacy initiatives that include a credit literacy component, such  as the Federal Deposit Insurance Corporation’s (FDIC) Money Smart  program, the Department of Defense’s Financial Readiness Campaign, and  the Federal Reserve’s nationwide financial education campaign, “There’s a  Lot to Learn about Money.” In order to fulfill its mandate to protect  consumers from deceptive and unfair business practices in the  marketplace, FTC engages in several activities, including maintaining a  Web site that features educational information on credit reporting and  other financial topics and a toll-free number for complaints and questions.  Some private sector initiatives include the Federal Home Loan Mortgage  Corporation’s (Freddie Mac) CreditSmart® Program, which is devoted  exclusively to promoting credit literacy and features modules on  interpreting credit reports. Fair Isaac Corporation maintains a Web site to  disseminate information on credit education. In addition, all three  nationwide CRAs engage in educational efforts through their Web sites and  partnerships with national organizations or schools.
GAO has also addressed the issue of financial literacy among consumers.  The most recent effort was a forum hosted on July 28, 2004, on the role of  the federal government in improving financial literacy. Forum participants  included experts in financial literacy and education from federal and state  agencies, the financial industry, nonprofit organizations, and academic  institutions. During the course of the forum, credit experts agreed that  consumers would benefit from more education on credit, including the cost  of credit, how to use credit, and how to manage credit responsibly. Forum  participants also advocated targeting low-and moderate-income individuals  and families, immigrant populations, and young people in these education  efforts. Similarly, a Federal Reserve study on financial education found that  successful financial education programs target specific groups, such as  youth or minority populations.
section_title: Consumers Generally Understood Credit Reports and Had Viewed Their Reports, but Many Lacked Specific Knowledge
paragraphs: On the basis of responses to our questionnaire, we found that consumers  generally understood credit reports and had viewed their reports but that  many lacked specific knowledge about what their credit reports contained,  how they were used, and other potential impacts of their credit history.  Correct responses to individual questions varied widely, ranging from a  high of 95 percent who knew that their credit history could affect their  ability to get a loan to a low of 7 percent of consumers who knew that the  credit reporting system was voluntary. We found that basic questions  generated the most correct answers. For example, most consumers could  correctly choose a description of a CRA and were aware that credit reports  contained information such as credit card balances. But many consumers  did not know other important information, such as how long information  remained on their report and the impact their credit history could have on  insurance and employment. We also found that more than half of  consumers—58 percent—said that they had viewed their reports, generally  before making a large purchase or refinancing a mortgage.
subsections: section_title: Consumers’ Average Survey Scores Were Slightly More Than 50 Percent
paragraphs: We designed our survey to assess consumers’ awareness of three distinct  aspects of credit reporting—credit reports, credit scores, and the dispute  resolution process—and collected responses from a random probability  sample of people throughout the United States. Our survey included 58  questions. Twenty-three survey questions (worth a total of 56 points) were  created to test consumers’ knowledge of credit reporting issues. In  addition, we incorporated 22 questions that were designed to obtain  consumers’ opinions about these issues and to examine their experiences  with the credit reporting process, along with 13 demographic questions.  The mean score or average score on the survey was 55 percent, measured  as the percentage of correct answers to the 23 questions designed to test  knowledge (see app. I).
section_title: Many Consumers Knew How to Obtain Their Credit Reports
paragraphs: Many consumers appeared to know how to obtain a copy of their credit  report. For example, 25 percent of consumers said that they would go to a  CRA, and an additional 6 percent named a specific CRA. Twenty-six  percent of consumers said that they would go online, and 3 percent said  that they would go online to a specific CRA. Some consumers who did not  identify a direct source of credit reports, such as a specific CRA, said that  they would ask a bank or financial institution, a credit card company, or the  institution where they had applied for a loan—all places that could direct  them to a CRA or another means of obtaining their report. Seventy-one  percent of consumers also said that they understood that they could order  a copy of their credit report at any time for any reason. The Consumer  Federation of America (CFA) found in its July 2003 study that the majority  of its respondents—97 percent—knew that consumers had the right to see their credit report. Appendix III contains more results from relevant  studies.
Before consumers answered any questions about credit reports, our survey  asked them to provide their own definition of what a CRA did. Based on  their responses, we determined whether consumers had no knowledge,  their knowledge was unclear, or they appeared knowledgeable. We found  that 19 percent of consumers were able to correctly articulate what a CRA  does but that 53 percent were unclear on this point. Another 28 percent of  consumers’ explanations were clearly incorrect, or the consumers said that  they did not know what a CRA did. However, as figure 1 shows, the  majority of consumers—82 percent—were able to select the correct  description of a CRA from among multiple choices. Only 19 percent of  consumers answered the multiple choice question incorrectly or said that  they did not know.
However, many consumers did not know specific information related to  obtaining their reports, such as the names of the CRAs and the cost of  ordering credit reports. Twenty percent of consumers correctly named one  CRA, 10 percent were able to name two, and 3 percent were able to name  three. Sixty-seven percent of consumers were unable to name any of the  CRAs. CFA’s 2003 survey found that 75 percent of respondents were unable  to name any CRAs and that just 15 percent could name one CRA. Further,  fewer than half of our respondents—approximately 45 percent—knew the cost of a credit report. Before the implementation of the FACT Act,  consumers generally had to pay for copies of their credit report in all but a  few circumstances. According to FTC, the laws of seven states (Colorado,  Georgia, Maine, Maryland, Massachusetts, New Jersey, and Vermont)  provided for free access to credit reports, upon request, at least annually.  We asked consumers throughout the United States whether they lived in  one of these “free report states” and found that 49 percent of those  consumers who did were aware of it. Forty-six percent of these consumers  did not know that they lived in a free report state, and 5 percent responded  incorrectly.
In addition, in our survey (conducted after the passing of the FACT Act but  prior to its implementation) we also asked consumers whether a new law  affecting their rights regarding credit reports and scores would entitle all  consumers to request one free credit report a year. Forty-seven percent  correctly responded that the new law did give consumers this right, 49  percent said that they did not know, and 4 percent responded incorrectly.
section_title: The Majority of Consumers Knew Most of What Was in Their Credit Reports
paragraphs: In addition to generally knowing how to obtain their credit reports, we  found that a majority of consumers could also identify most of the  information contained in their reports. As shown in figure 2, most  consumers knew that their credit reports contained their Social Security  numbers, credit payment history, and any bankruptcies. In addition, 92  percent of consumers answered correctly that credit card companies could  report unpaid bills. In July 2003, the Federal Reserve reported data showing  that 81 percent of their survey respondents knew that credit reports  included employment data, payment histories, any inquiries made by  creditors, and information from public records (see app. III).
With respect to our survey data, we found that fewer consumers knew what  their reports might not contain. Fifty-nine percent of consumers knew that  their reports did not contain information on race, but 15 percent of  consumers incorrectly thought race was included, and 25 percent did not  know. Fifty-eight percent of consumers knew that balances in their  checking accounts were not on their report, while 21 percent of consumers  thought balances were on their reports, and 21 percent did not know. We  also asked consumers whether they thought income was on their credit  reports, and 37 percent correctly responded that it was not, while 20  percent did not know if it was included. While some confusion exists as to  whether income is included on credit reports, we spoke with all three of  the nationwide CRAs to determine if they included income in credit  reports. Representatives from all three nationwide CRAs told us that their  credit reports do not show information on consumers’ incomes. In  addition, according to the three CRAs, the format CRAs use in creating  credit reports for individuals—the Metro 2 format—does not include a field  for income, and CRAs do not collect this information. However, in  commenting on a draft of this report, FTC officials told us that income  sometimes, although rarely, does appear on credit reports. Based on our  discussions, we considered the responses of consumers who said that  income was not included in their credit reports as correct.
In addition, before asking consumers multiple choice questions about  credit report contents, we asked them to provide their own definition of a  credit report. We found that 19 percent of consumers appeared  knowledgeable, but the level of knowledge was unclear for an estimated 63  percent. We found that 14 percent of consumers gave clearly incorrect  responses or responses showing that they did not know.
Most consumers also knew some sources of the information on their credit  reports, although few knew that the credit reporting system was voluntary.  Eighty-nine percent of consumers knew that banks and credit card  companies provided information to CRAs, and 79 percent knew that debt  collectors did. Fewer consumers—46 percent—knew that information on  their credit report could come from courthouse and other public records.  Still fewer—7 percent—knew that lenders were not required to report  information to any CRA. We found that 57 percent of consumers did not  know how many CRAs lenders must report to, and 25 percent incorrectly  thought that lenders were required to report to all of the CRAs. Because the  credit reporting system is voluntary, consumers need to understand that  their credit reports may differ from one another and may not contain all  information related to their credit history. For example, if a consumer is  making timely loan payments to a lender that does not report to any of the  CRAs, this payment history will not be included on the consumer’s credit  reports.
We also asked consumers if they knew how long information stayed on  their report. We wanted to examine whether consumers were aware of the  full impact their credit behaviors, such as making late payments or filing  for bankruptcy, could have on their credit report. We found that 47 percent  of consumers knew that information could generally stay on their report  for 7 or 10 years. Twenty-seven percent of consumers said that they did  not know how long information remained on their reports, and 26 percent  answered this question incorrectly.
section_title: Most Consumers Knew Some of the Possible Impacts of Credit Reports and Some Rules Governing Access
paragraphs: We found that most consumers understood some of the ways their credit  history—as contained in their credit reports—could affect their lives, but  around one-third were not aware of several potential uses of their reports.  For instance, most consumers (95 percent and 72 percent, respectively)  understood that the information in their credit reports could affect their  ability to obtain loans and rent housing (fig. 1). However, fewer consumers  (36 percent and 33 percent, respectively) understood that their credit  histories could affect insurance coverage and premiums or that potential  employers could use credit reports when making hiring decisions.
We also asked consumers about rules governing access to this information.  Specifically, we wanted to determine whether consumers understood when  their consent was needed to release their credit reports. For example,  while only about one-third of consumers understood that potential  employers could use credit reports when making hiring decisions, 61  percent knew that employers could not obtain credit reports on potential  or current employees without consent. We also found that 85 percent of  consumers knew that anyone who wanted to view their report (not in  connection with a product or service) could not do so without their  consent. Seventy-six percent knew that someone with a court order had the  right to see their report. Fewer consumers—55 percent—answered  correctly that someone who needed to view their credit history in  connection with a product or service that they had requested could access  their credit report without consent.
In another study on credit scores and consumer credit, CFA and Providian®  found that the majority of respondents—81 percent—knew that mortgage  lenders could use their credit history (in the form of a credit score) to  determine whether they would receive a mortgage loan and the cost of the  loan. Fewer respondents—47 percent—understood the effect of their  credit history on decisions made by a home insurer. Forty-eight percent of  CFA and Providian’s respondents knew the effect their credit history could  have on a landlord’s decision to rent to them.
section_title: More Than Half of Consumers Had Seen Their Credit Reports and Found Them Understandable
paragraphs: Our survey data showed that 58 percent of consumers had seen their credit  reports at some point in time and that 45 percent of this group had viewed  them within the last year. Other studies have reported that from 43 to 63  percent of their respondents had seen their credit reports. For example, in  a July 2003 study the Federal Reserve reported that 58 percent of  consumers had reviewed their reports. We also asked the Consumer Data  Industry Association (CDIA)—the trade group representing the  CRAs—how many credit reports Equifax, Experian, and TransUnion had  provided to consumers in 2003. CDIA told us that 57.4 million credit reports  were issued to consumers in 2003.
In our survey, we also asked the 58 percent of consumers who said that  they had viewed their credit reports whether they had ordered their reports  themselves or if someone else had ordered their report for them. Of the  consumers who had seen their credit reports, 53 percent said that they had  ordered their report themselves, and 47 percent said it had been ordered by  someone else for them, including:  a mortgage company (29 percent),  a bank or financial institution (25 percent),  a lender in general (16 percent),  a car dealership (12 percent),  a credit card company (4 percent), and  other source (14 percent).
Of the 58 percent of consumers who told us that they had viewed their  reports, the largest percentage said that they had seen their reports  because they were making a large purchase, such as a car or home, or were  refinancing (fig. 3).
The credit reporting industry has also collected information on the reasons  consumers order their reports. In addition, in 2003, Louis Harris and  Associates conducted a study that was designed to determine consumers’  interest in free credit reports and found that: 39 percent of respondents looked at their credit reports because they   31 percent were ready to apply for a loan or credit card,  10 percent had been denied credit,  6 percent were concerned about identity theft,  12 percent had some other reason, and  1 percent did not know why they had seen their reports (see app. III).
We also asked consumers who had seen their reports whether they  understood the information. The majority of them—79 percent—felt that  the information on their reports was very or somewhat easy to understand.  Eighteen percent felt that their reports were somewhat or very hard to  understand, and 3 percent did not know.
section_title: Consumers Had a Basic Understanding of Credit Scores, and About One-Third Had Obtained Their Scores
paragraphs: We found that most consumers generally understood credit scores but  lacked specific knowledge about certain factors that affected these scores.  For example, 87 percent of consumers correctly responded that late credit  card payments affected scores negatively, and 70 percent knew the general  purpose of a credit score. However, fewer—28 percent—could identify a  number within an acceptable range of possible scores. And while many  consumers were aware of some factors that could affect their scores, such  as skipping loan payments, many were also unaware of others, such as the  possible negative effect of using all available credit. We also found that  although consumers had some knowledge of credit scores, only about  one-third had actually obtained them.
subsections: section_title: Consumers Had a Basic Knowledge of Credit Scores
paragraphs: Before consumers answered any other credit score questions, our survey  asked them to define a credit score. About 15 percent of consumers were  able to give answers clearly indicating that they knew the definition of a  credit score, while about 53 percent of responses were not specific enough  to indicate the extent of consumers’ knowledge. Thirty-two percent of  consumers gave answers that indicated they either had an incorrect  understanding of credit scores or simply did not know the definition.  However, when asked to choose the correct definition of a credit score  from a list of choices, about 70 percent correctly responded that a credit  score predicted the likelihood that a consumer would repay a loan. These  correct responses from our survey appear to be higher than those found in  CFA and Providian’s 2004 study, which found that 34 percent of consumers  answered “true” to the statement that a credit score mainly indicates the  risk of repaying a loan. On our survey, we also asked consumers to  provide a number that could be a possible credit score. About 28 percent of  consumers gave a number within the correct range (between 300 and  900).
We also asked consumers questions about the effects of certain factors on  credit scores. The mathematical models used to compute credit scores are  considered proprietary information, and companies have no obligation to  release this information to the public. However, FCRA, as amended by the  FACT Act, requires that CRAs disclose to consumers that request the  information the key factors that have adversely affected their credit scores.  In addition, though not required to disclose its credit scoring models, the  Fair Isaac Corporation has published information on five factors that affect  credit scores generated using their models (FICO® scores). These factors  are:  Payment history: Paying bills on time can generate a higher score.
Amounts owed: Using all available credit can result in a lower score.
Length of credit history: Having a credit history for a relatively long  period of time can result in a higher score.
Type of credit: Having a diverse mix of installment (mortgages and  loans) and revolving credit (credit cards) can generate a higher credit  score.
New credit: Frequently applying for new credit can contribute to a lower  score.
According to Fair Isaac Corporation, payment history and amounts owed  have the most influence on credit scores (fig. 4).
We found that consumers were aware of some of the most basic factors  affecting credit scores, like the importance of payment histories. Survey  data showed that more than 80 percent of consumers knew that skipping a  loan payment or making a late credit card payment could lower their credit  scores (fig. 5). Moreover, a majority of consumers (79 percent) correctly  responded that having had a credit history for a long period of time could  result in a higher score. In addition, 60 percent of consumers knew that  frequently applying for credit could have a negative effect on their scores.  CFA and Providian’s 2004 study also found that most consumers  understood the positive effect of making timely payments (87 percent) and  the negative effect of making payments more than 30 days late (60  percent).
section_title: Many Consumers Were Not Familiar with Some Factors That Could Affect Credit Scores
paragraphs: We spoke with industry experts who said that while consumers generally  understood that scores help determine creditworthiness, many consumers  were confused by or unaware of various factors that affected credit scores.  Our survey showed that while consumers were aware of some factors  affecting credit scores, many lacked some knowledge in this area. For  example, of the eight questions on our survey pertaining to the factors  affecting credit scores, 52 percent of consumers missed three or more. A  complete understanding of these factors can be important for consumers  who want to improve their credit scores in order to receive approval for  credit or obtain a more favorable interest rate.
For example, 48 percent of consumers were unaware of the negative effect  of using all available credit—the second-largest factor influencing credit  scores. It is important for consumers who want to improve their credit  scores to understand the multiple factors that affect their scores; for  example, that not charging the maximum on their credit cards is almost as  important as making timely payments. In addition, about the same  percentage did not know that having had a credit history for a short time  could lower their score. Consumers who have had credit for a short period  of time lack a history of positive credit behavior to balance out possible  bad credit decisions. Therefore, these consumers may need additional  information on the advantages of making positive credit decisions as they  begin establishing credit histories. Finally, around half of consumers did  not know that some factors had no effect on credit scores, such as having a  low checking account balance or requesting a copy of their credit report.  The Federal Reserve’s 2003 study and CFA and Providian’s 2003 study also  examined consumers’ knowledge of the factors that affect credit scores.  For example, 45 percent of respondents to the CFA and Providian study  knew that using all available credit could lower consumers’ credit scores.  The Federal Reserve’s July 2003 study reported that around 60 percent of  respondents answered “false” to the following statement: “Your credit  rating is not affected by how much you charge on your credit cards.”
section_title: Few Consumers Had Obtained Their Credit Scores
paragraphs: Our survey found that about one-third of consumers had obtained their  credit scores, or about half the number of consumers who had seen their  credit reports. Fair Isaac Corporation’s 2003 consumer survey found that 31  percent of consumers had obtained their credit scores, and CFA and  Providian’s 2004 survey showed that 53 percent of consumers had obtained  them. We also asked CDIA for the number of credit score disclosures that  the three nationwide CRAs made to consumers in 2003. According to CDIA,  approximately 9.8 million credit score disclosures were made in that year.
section_title: Consumers’ Knowledge of the Dispute Process Was Limited, and Few Consumers Had Disputed Information
paragraphs: Consumers knew that they could dispute inaccurate information on their  credit reports, but fewer than half were able to answer specific questions  about the dispute process and their rights. For example, about one-third of  consumers correctly responded that CRAs would investigate disputed  information for free. In addition, the majority of consumers (94 percent)  did not name FTC as the federal agency they would contact with a  complaint about a CRA—for example, about an unresolved  dispute—although FTC is the federal agency primarily responsible for  enforcing consumers’ rights for CRA’s credit reporting. Overall, around 18  percent of consumers said that they had actually disputed information on  their credit reports at some point. Some of the most frequent reasons these  consumers mentioned for disputing were that the information on the report  was not theirs or that the report showed either incorrect payment histories  or incorrect late payments. Consumers reported that incorrect information  was removed from their reports in about two-thirds of the disputes.
subsections: section_title: Consumers Knew That They Could Dispute Information but Did Not Understand the Dispute Process or Their Rights
paragraphs: Ninety percent of consumers correctly responded that they could dispute  information they believed was inaccurate and request that it be corrected.  They also appeared to understand the importance of checking their reports  for potential errors, though many did not do so. While the majority of  consumers (86 percent) said that they should check their reports  periodically, only 61 percent of this group reported actually having seen  their credit reports. Further, consumers were unclear about some of their  specific rights under the dispute process. For instance, prior to the FACT  Act, FCRA provided consumers with certain rights when they disputed  information through CRAs but not when consumers disputed information  with those that had furnished it, such as credit card companies. Yet  almost two-thirds of consumers (64 percent) said that they would contact  their lender first rather than a CRA to dispute an incorrect late payment on  their credit report. Another 18 percent said that they would contact the  CRA first, while 13 percent said they did not know whom to contact. The  CFA’s 2003 study also found that 64 percent of consumers believed that  they had to contact their lender if they found an inaccuracy in their reports  or scores. The fact that consumers are more likely to have ongoing  business relationships with their lenders and not with the CRAs could help  explain these responses.
In addition, many consumers were unaware of other details of the dispute  process. For example:  72 percent did not know that CRAs investigate incorrect information for   60 percent did not know that resolving a dispute with one CRA did not  mean that the other CRAs would automatically correct the  information; 59 percent did not know that they had the right to add an explanatory  statement to their credit reports if they were unable to resolve a dispute;  and  62 percent did not know which agency to contact if they were not  satisfied with a CRA’s work—for instance, if a dispute was not  resolved—and few (6 percent) named FTC as the government agency  they would contact.
This lack of knowledge is consistent with what we heard from some in the  credit reporting industry—that consumers do not know about the specifics  of the dispute process unless they have undertaken it themselves and that  they learn the process once they contact a CRA. In commenting on a draft  of this report, FTC noted that consumers are provided with the information  they need to dispute information when they obtain a credit report from a  CRA, because the CRAs are required by law to provide a “summary of  rights” with each credit report consumers request. This “summary of  rights” explains consumers’ rights under FCRA, including information on  how to conduct a dispute, and provides contact information for the FTC  and other enforcement agencies. While this requirement provides  consumers with information when they request a report from a CRA  directly, many consumers do not request reports themselves. Nearly half of  the 58 percent of consumers in our survey who obtained their reports said  that someone else had done the ordering for them. As a result, these  consumers may not have received a copy of the summary of rights and may  not have had the information necessary to conduct a dispute or file a  complaint about the work of a CRA.
section_title: The Few Consumers That Tried to Dispute or Correct Information Did So for a Variety of Reasons
paragraphs: We found that approximately 18 percent of consumers said that they had  tried to dispute information on their credit reports at some point. To  supplement our survey data, we asked CDIA to provide data from each of  the three nationwide CRAs on the number of disputes. CDIA found that of  the approximately 57 million report requests in 2003, about 12.5 million  involved disputes.
Our survey data showed that the 18 percent of consumers who disputed did  so for a variety of reasons. For example, about 17 percent found items on  their reports that belonged to someone else (fig. 6). About 14 percent of  consumers disputed for other reasons, including an incorrect payment  history (14 percent), incorrect late payments (14 percent), incorrect bill  information (13 percent), or incorrect credit card information (13 percent).  We also found that about 10 percent of consumers had disputed personal  identifying information, such as a name or address. During our survey,  consumers gave the following examples of their reasons for disputing  information:   “They had put the loan on twice”;   “They said I hadn’t paid some bill that showed up before I was born”;   “It said I was deceased”; and  “Wrong address, repossession of a car in California where I have never  lived.”
In Congressional testimony, industry officials have noted that it is  important to address the issue of inaccuracies in credit reports. But they  added that many questions that begin as consumer disputes might not be  attributable to errors. For instance, they said that consumers might have  not understood what kinds of information credit reports could contain and  could withdraw a presumed dispute after learning more about the reporting process. These officials also said that a presumed dispute could be  something very easy to correct, such as a misspelled last name or wrong  address.
Based on our survey, of the 18 percent of consumers that had disputed,  around two-thirds (69 percent) said that the disputed information had been  removed from their credit reports. Another 23 percent said that the  information had not been removed, and 7 percent said that they did not  know if it had been. In 2003, CDIA testified that it had collected information  on the results of consumer disputes and found that data had been deleted  in 27 percent of the disputed cases, verified and left on the person’s report  in 46 percent of the cases, and modified following the instructions of the  entity furnishing it in 27 percent of the cases. CDIA said, however, that  these actions could have been updates of information as well as disputes.  Our survey results also showed that of those consumers who had disputed  (18 percent), about one-third contacted their lender, one-third contacted  the CRA only, and one-third contacted both.
Of the consumers in our survey who had disputed and had information  removed from their credit reports (69 percent), we found that about 72  percent said that the information had not reappeared, although 15 percent  of this group were unsure if it had been reinserted. The issue of information  being reinserted has been raised in testimony before Congress, especially  in cases of identity theft. In addition, FTC continues to receive consumer  complaints through its Web site and toll-free number regarding the  reinsertion of deleted items in credit files without notice to the consumer.  We also found that about one-third of the consumers who disputed  information in credit reports chose to add an explanatory statement to  their reports, as allowed under FCRA. The CRAs have noted that lenders  may take such a statement into consideration when making credit  decisions.
section_title: Certain Demographics and Credit Experiences Are Associated with Consumers’ Understanding of Credit Reporting Issues
paragraphs: We found that education, income, race/ethnicity, employment status, and  age, as well as having had an automobile or mortgage loan and experience  with the credit reporting process, all had a statistically significant effect on  consumers’ knowledge of credit reporting. These factors have a cumulative  affect on consumers’ knowledge. For example, a consumer with a college  degree, credit experience, and a high income could score much higher than  a consumer without these factors. We found that less educated consumers,  those of Hispanic origin, those with lower incomes, and younger and older  consumers scored lower on the survey than others. At the same time, we  found that consumers who had had experience with credit or the credit  reporting process, including obtaining a credit report, scored higher.  Finally, we found that other experiences, such as having been a victim of  identity theft, gender, and residence in one of the seven “free report states”  did not have a statistically significant effect on consumers’ knowledge.
subsections: section_title: Those with Less Education and Lower Incomes Scored Lower on Our Survey
paragraphs: Our survey results showed that awareness of credit reporting issues  generally increased as consumers’ educational level increased. As figure 7  shows, consumers with less than a high school education had a lower mean  or average score—measured as the percentage of correct answers to  questions designed to test knowledge—overall compared with those with  more education (36 percent compared with 63 percent for those with a  bachelor’s degree or more). In addition, as educational level increased,  consumers obtained reports and scores and disputed more often than those  with less education. For example, consumers with less than a high school  education had not viewed their credit reports as frequently as their more  educated counterparts, especially those with a bachelor’s degree or more  (25 percent and 69 percent, respectively). In addition, we found that  consumers with less than a high school degree were less likely to know  some of the “basics” about credit reporting—for example, that skipping  loan payments and making late credit card payments had a negative effect  on their credit scores. Specifically, 55 percent of those with less than a high  school degree knew that skipping loan payments had a negative effect,  compared with 95 percent of those with a bachelor’s degree or more. In  addition, although the Internet is one of many possible sources for  consumers to obtain a copy of their credit reports, those with less than a  high school education were less likely to name the Internet as a source  compared with those with a bachelor’s degree or more (10 percent and 34  percent, respectively). Further, government agencies, CRAs, and others use  the Internet as a tool to disseminate educational information on credit  reporting issues.
Consumers with relatively low household incomes also had less knowledge  of credit reporting than consumers in higher-income households. For  example, those in the lowest household income group (less than $25,000  annually) correctly answered an average of 47 percent of survey questions,  while those in the highest household income group ($75,000 or more  annually) correctly answered around 63 percent (fig. 7). In addition, the  percentage of consumers who had viewed their reports and scores and  disputed inaccurate information generally increased with household  income level. For example, consumers with household incomes of $25,000  or less were less likely to have viewed their credit reports than consumers  in the highest household income group (38 percent compared with 75  percent). We also found that consumers in households making less than  $25,000 were less likely than the highest income group to know that their  credit history could affect the interest rates lenders offered them (73  percent compared with 89 percent) and that frequently applying for credit  affected credit scores negatively (44 percent versus 78 percent). In  addition, those in the lowest income group were less likely to name the  Internet as a place to go for a credit report than those with household  incomes of $75,000 or more (17 percent and 36 percent, respectively).
section_title: Race/Ethnicity Was Associated with Differences in Survey Scores
paragraphs: We also found that race/ethnicity had a statistically significant effect on  consumers’ knowledge of credit reporting. For example, African Americans  and whites scored similarly, showing approximately equal levels of  knowledge, while Hispanics scored consistently lower on our survey. As  shown in figure 7, African Americans correctly answered an average of 55  percent of survey questions, whites an average of 58 percent, and Hispanics  an average of 43 percent. In addition, we found that African Americans  and whites were almost equally as likely to have viewed their credit reports  and obtained their credit scores but that Hispanics were less likely to do  either (fig. 8). More African Americans than whites said that they had  ordered their credit reports themselves—65 percent and 50 percent,  respectively.
Table 1 highlights some specific survey responses for each racial/ethnic  group. We found that 84 percent of African Americans and 92 percent of  whites knew that skipping loan payments could lower their credit score.  And around the same percentage of both groups (about 90 percent) knew  that they could dispute information on their credit report. Hispanics had  lower scores on both of these questions—63 percent and 78 percent,  respectively. However, when asked if race was or was not on their credit  reports, Hispanics scored virtually the same as African Americans, though  still lower than whites. Finally, we found that more whites (35 percent)  named the Internet as a source for obtaining their credit reports than  African Americans and Hispanics (18 and 16 percent, respectively).
Our survey findings are consistent with information we collected during  interviews with federal agencies and other organizations, including the  National Council of La Raza (La Raza). Officials at the FDIC, the Office of  the Comptroller of the Currency, and FTC told us that their financial  literacy efforts are often target certain populations, including Hispanics,  that may more often be “unbanked” or less financially literate.  Government officials and representatives of other organizations, including  La Raza, discussed the need for financial literacy programs among the  low-income Latino community. They also told us that some Latinos tend  to avoid debt, making them less likely to obtain credit and thus less likely  to have experience with credit reports and scores. In our survey, we found  that more white consumers had experience with credit-related products  than African Americans or Hispanics, with Hispanics having the least  amount of experience (table 2).
section_title: Younger and Older Consumers Scored Lower on Our Survey
paragraphs: We also found that consumers’ knowledge of credit reporting differed with  age and that the youngest consumers (aged 18 to 24) and the oldest  consumers (aged 65 and older) scored lower compared with other age  groups. The average scores for the youngest and oldest groups were 50 and  49 percent, respectively, compared with an average score of almost 60  percent for all other age groups (fig.7). We also found that experience with  the credit reporting process varied by age. For example, 7 percent of the  youngest consumers and 17 percent of the oldest consumers had obtained  their credit scores, compared with 33 to 48 percent of those in all other age  groups. We also found that only 18 percent of those aged 18 to 24 knew  that their credit history could affect employment decisions—an issue of  particular importance to persons in this age group, who are likely to be  engaging in their first job search—while 29 to 46 percent of those in all  other age groups knew this. Younger consumers were also less aware that  having a credit history for a short time could affect scores negatively,  especially when compared with those aged 25 to 34 (41 percent and 61 percent, respectively). Finally, those over age 65 were less likely to say  that they should check their credit reports from time to time for possible  errors than all other age groups (71 percent versus 88 to 92 percent) and  less likely to name the Internet when compared to all other age groups (14  percent versus 29 to 37 percent).
section_title: Consumers with Credit Experience Scored Higher on Our Survey
paragraphs: Our analysis showed that having had certain credit experiences increased  consumers’ knowledge of credit reporting issues. This finding is consistent  with opinions from experts in the field of financial literacy, who have noted  that consumers who have experience with a financial product or  transaction—in other words, those who have been able to “learn by  doing”—are better informed about financial products and transactions than  those who lack such experience.
First, we found that consumers who had viewed their reports, obtained  their scores, or disputed information demonstrated more knowledge of  credit reporting. For example, we found that consumers who had viewed  their credit reports had a higher average survey score (62 percent) than  those who had not (47 percent) (fig. 9). Consumers who had seen their  credit scores were also better informed about credit issues than those who  had not (64 percent and 51 percent, respectively).
We found that having had one of these three experiences could increase  responses to certain questions by 15 to almost 30 percent—for instance, of  those who had obtained their credit reports, 59 percent knew how long  information remained on a credit report, compared with 30 percent of  those who had not obtained a report. In addition, 76 percent of those who  had obtained their credit scores but 52 percent of those who had not knew  that frequently applying for new credit could have a negative effect on a  scores.
Second, we found that consumers who had either obtained an automobile  loan or a home loan/mortgage at some point in time scored higher on the  overall survey than those who had not had these loans. Specifically,  consumers who had experience with these loans—about 74 percent of  consumers—scored an average of 58 percent on the survey, while those  who had not scored an average of 45 percent (fig. 9). In addition, those who  had obtained either an auto or mortgage loan were more likely to view their  credit reports and scores and to dispute information on their reports—66  percent compared with 29 percent of those that had not had these loans.  Consumers who had had an auto loan or mortgage also appeared to be  more familiar with some of the factors that might or might not affect credit  scores, such as frequently applying for credit and using most of the credit  available to them, than consumers who had not had such loans. For  example, 65 percent of those who had had these loans were aware that  frequently applying for new credit affected scores negatively, compared  with 43 percent of those who had not had these loans. In addition,  consumers who had taken out these loans were more likely to know how  long information remained on credit reports than consumers who had not  (52 percent and 30 percent, respectively).
section_title: Being a Victim of Identity Theft and Living in a Free Report State Had Little Effect on Consumers’ Survey Scores
paragraphs: Government and industry officials we interviewed told us that certain  experiences—such as having been a victim of identity theft or having  requested a credit report because of an adverse action, such as denial of  credit—might increase consumers’ knowledge of credit issues. However, in  our regression analysis we found that these experiences did not have a  statistically significant effect on consumers’ knowledge. Figure 9 shows  that consumers who said they had been victims of identity theft  (approximately 10 percent of survey respondents) and those who had  obtained their reports because of adverse action scored only slightly higher  than other consumers. Although we did not see large differences in overall  knowledge of credit reporting between victims of identity theft and other  consumers, we found that victims of identity theft were more likely to  obtain their credit reports (72 percent, compared with 56 percent) and  disputed information more frequently (36 percent and 16 percent,  respectively). In addition, like all other groups, victims of identity theft  did not name FTC as the agency to contact if they had a problem with a  CRA, although Congress designated FTC as the agency responsible for  identity theft claims. Identity theft complaints to FTC have increased in  recent years. We also did not see much difference in overall knowledge  between those who had obtained their reports because of an adverse action  and those who had not. However, consumers who had experienced an  adverse action and requested a report were more likely to order their  reports themselves (78 percent) than other consumers (49 percent) and  more likely to dispute information (52 percent compared with 15  percent).
Finally, we looked at consumers who lived in free report states—one of the  seven states where consumers could order a free copy of their credit report  annually before the FACT Act was passed (about 21 percent of  respondents). Based on our discussions with government and industry  officials, we decided to test whether living in a free report state would  increase consumers’ knowledge about credit reporting issues compared  with those who did not live in these states. But as figure 7 shows, we found  that consumers residing in free report states had only slightly higher  average survey scores than consumers elsewhere (59 percent compared  with 55 percent). As reported by the Congressional Research Service in  2003, TransUnion found in a 2003 study that around 4 percent of consumers  in free report states had requested their reports, compared with around 2  percent of consumers in other states. Colorado was the exception, with  more than 10 percent requesting their reports, possibly because  someconsumers were notified of this right by mail. In our study, 46  percent of consumers in free report states said that they did not know they  had this right.
We also assessed the effect of gender and employment on consumers’  knowledge. In our regression analysis we found that gender did not have a  statistically significant effect. Actively employed consumers scored slightly  higher on the survey than consumers in other employment groups. More  survey results for these and other factors we looked at are reported in  appendix IV.
section_title: Conclusions
paragraphs: Given that credit reports and the credit scores derived from them impact  many important aspects of consumers’ lives, it is increasingly important  that consumers understand what is in reports, how reports and scores are  used and the potential impacts of both. We found that most consumers  understood the basics of credit reporting but were less aware of other  important information, including:  The impact of information contained in credit reports, how long  information remains on reports, some types of information reported,  and the possible impact of credit history on insurance coverage and  premiums and employment;  How various behaviors impact credit scores—for example, that using all  available credit and frequently applying for new credit can lower a  score;  The dispute process and federal protections under FCRA, as amended  by the FACT Act—for example, that CRAs investigate erroneous  information for free, that the FACT Act allows consumers a free credit  report each year, and FTC is the federal agency charged with enforcing  consumer protections for credit reporting by CRAs.
Although both industry and government agencies have numerous efforts  under way to increase financial literacy, our analysis highlights specific  areas for targeting educational efforts to increase consumer knowledge of  credit reporting. We believe our analysis could help FLEC develop its  national financial literacy strategy and Treasury develop its multimedia  campaign based on this strategy, as mandated in the FACT Act. At our  forum on financial literacy, credit experts agreed that consumers would  benefit from more education on credit, including the cost of credit, how to  use credit, and how to manage credit responsibly. Without this  understanding, it is difficult for consumers to know whether they are  receiving the most favorable decisions when applying for credit or how to  improve their credit history to achieve higher credit scores.
Specifically, it would be beneficial for consumers to know what  information is included in a credit report and what information has the  greatest impact on credit decisions and therefore would be important to  review for accuracy and completeness. Our survey showed that 41 percent  of consumers did not review their reports, although periodic reviews are an  important step in ensuring the accuracy of credit histories and possibly  help mitigate against the effects of identity theft. Further, we do not believe  that consumers fully understand their rights under the dispute process,  since many did not know that CRAs investigate incorrect information for  free or that FTC is the federal agency primarily responsible for enforcing  consumers’ credit reporting rights by CRAs, such as in the case of an  unresolved dispute. Given the changes under the FACT Act, consumers  would also benefit from knowing that they are entitled to one free credit  report each year.
Our analysis also provides some insight into possible subgroups of  consumers that would likely benefit from more targeted education. We  found that certain credit experiences—having had an auto or mortgage  loan—and some demographic factors—income, education, age, and  race/ethnicity—were associated with consumers’ knowledge of credit  reporting issues. These results suggest that less educated, lower-income,  and Hispanic consumers may not have sufficient knowledge to understand  the negative repercussions of a poor credit history, erroneous information  on credit reports, or identity theft. FLEC and Treasury will need to use  creativity in their national strategy and media campaign in order to reach  these groups, going beyond establishing an Internet link to federal  resources, because these consumers may not have Internet access. Further,  since we found that those with less than a high school education and  younger consumers scored lower on our survey, FLEC and others need to  consider whether an earlier introduction of credit reporting and other  financial concepts, such as in high school curriculums, may begin to  address this apparent knowledge gap.
section_title: Recommendations for Executive Action
paragraphs: Consistent with FLEC’s and Treasury’s mandate under FCRA, as amended  by the FACT Act to improve consumers’ understanding of credit reports,  credit scores, and the need to dispute inaccurate information, we  recommend that:  The Secretary of the Treasury, in his capacity as Chairman of FLEC,  work with its members to improve consumers’ understanding of their  federal rights through FLEC’s national strategy and Treasury’s  multimedia campaign, targeting those populations that scored the  lowest on our survey—for example, consumers with less than a high  school education and relatively low income levels, certain age groups  (under 25 and 65 and older), and Hispanics.
In targeting certain subpopulations, FLEC should expand efforts to  provide financial education on credit reporting issues, for example in  high school curriculums and in venues likely to reach Hispanics.
In addition, we recommend that the Chairman of FTC, through ongoing  educational initiatives, materials, and public announcements, and in light  of FTC’s responsibility to protect consumers and enforce consumer rights:   Improve consumers understanding of how credit reports and scores are   Encourage consumers to obtain their credit reports and credit scores  and if necessary, dispute inaccurate information on their reports; and   Educate consumers about FTC’s role in enforcing consumers’ rights in  credit reporting.
section_title: Agency Comments and Our Evaluation
paragraphs: We requested comments on a draft of this report from the heads of  Treasury and FTC. We received written comments from Treasury and FTC  that are summarized below and reprinted in appendixes VII and VIII,  respectively. Treasury and FTC also provided technical comments that we  have incorporated as appropriate.
While not specificially commenting on our recommendations, the Deputy  Assistant Secretary of the Office of Financial Education at Treasury stated  that the information the report presented would allow them to better  understand which parts of the credit reporting system are least understood  and channel their efforts to increasing knowledge of those areas. Treasury  outlined several ongoing efforts to improve financial literacy and noted that   FLEC is in the process of developing a national strategy to promote basic  financial literacy and education among all Americans.
In commenting on the draft report, the Chairman of FTC stated that the  report’s findings were useful to their ongoing outreach efforts and  described efforts they have underway to inform consumers of their rights  regarding credit reporting. FTC stated that it appreciated the report’s  recommendation and, in response, stated that FTC has been engaging in  outreach efforts to reach certain groups, such as Hispanic consumers and  high school and college students. FTC also emphasized that credit bureaus  are to include FTC’s “Summary of Rights” with every credit report provided  to consumers, as required in FCRA section 609(c). FTC stated in its  comments that the summary of rights tells consumers what they need to  know, when they need to know it. Since the summary of rights includes  FTC’s contact information, they believe this is reaching the targeted  audience—those consumers that requested and reviewed their credit  reports from CRAs. While we agree that this information should assist  those consumers who request their credit reports, this information may not  reach other consumers who have not ordered or reviewed their credit  report from CRAs. In this regard, when we asked consumers where they  would go to get a copy of their report, only 34 percent said they would go to  CRAs. Further, of the 58 percent of consumers that stated they had seen  their credit report, only about half said that they had ordered their report  themselves and therefore should have received this summary of rights. As  we recommended, FTC should encourage consumers to obtain their credit  report and credit scores, and if necessary, dispute inaccurate information  on their reports. On a related point, FTC stated in their letter that they did  not believe our survey results shows that consumers who might wish to  complain about a credit bureau would be unaware of FTC’s role and  described a variety of efforts for publicizing their enforcement authority.  Even with these efforts, our survey showed that only 6 percent of  respondents indicated that the FTC was the agency they would contact if  they were to file a complaint against a CRA, such as in the case of an  unresolved dispute with the CRAs. This finding indicates to us that few  consumers are aware of the vital role FTC plays in protecting consumers’  rights in regards to credit reporting and the CRAs. As we recommended,  FTC should do more to educate consumers of its role in enforcing these  rights.
We are sending copies of this report to the Chairman of FTC and the  Secretary of the Treasury. We will make copies available to others upon  request. In addition, the report will be available at no charge on the GAO  Web site at http://www.gao.gov.
If you have any questions concerning this report, please contact me at  (202) 512-8678 or jonesy@gao.gov or Debra R. Johnson at (202) 512-9603 or  johnsond@gao.gov. Other contacts and acknowledgements are listed in  appendix IX.
section_title: Objectives, Scope, and Methodology
paragraphs: The objectives of this report were to examine the extent to which  consumers (1) understand and review their credit reports; (2) understand  and review their credit scores; and (3) know how to dispute information on  their credit reports and actually do so.  In addition, this report discusses  some of the factors that are associated with consumers’ understanding of  these issues.
subsections: section_title: Scope and Methodology
paragraphs: To determine the extent of consumers’ knowledge of credit reporting  issues, we conducted a telephone survey of 1,578 randomly-sampled  noninstitutionalized U.S. adults 18 and over. This survey was designed to  gauge respondents’ knowledge of credit reports, credit scores, and the  dispute resolution process, and to estimate the extent to which U.S.  consumers have obtained their credit reports and scores or have  experienced other credit-related events. The survey data collection was  conducted by a private research firm under contract to GAO from late July  to early October 2004, shortly before the provision of the Fair and Accurate  Credit Transactions Act (FACT Act) that gives all U.S. consumers the right  to receive one free credit report a year was implemented.
Before and during the design of our survey instrument, we also collected  data and testimonial evidence on credit reporting literacy and some general  financial literacy issues from relevant federal agencies, industry  representatives, non-profit organizations and consumer agencies. To  develop survey questions and to provide background and context for our  survey findings, we collected and analyzed data from relevant surveys and  other studies conducted by several of these agencies and organizations,  including the Consumer Data Industry Association (CDIA), the Federal  Reserve Board (FRB), the American Association of Retired Persons  (AARP), the Consumer Federation of America (CFA), Federal Home Loan  Mortgage Corporation (Freddie Mac), Fair Isaac Corporation, members of  the Financial Services Roundtable, Jump$tart Coalition, the Congressional  Research Service (CRS), and the three nationwide CRAs (Equifax,  Experian, TransUnion). Please see appendix III for listing of findings from  some of the surveys and studies that were reviewed.
section_title: Design of the Telephone Sample
paragraphs: Our survey used random digit dialing methods to generate a probability  sample of non-insitutionalized U.S. adults aged 18 and older. Analytica  Research, in affiliation with Dove Consulting Group, Inc, obtained and  dialed 9,784 randomly generated phone numbers from Survey Sampling  International. These phone numbers, which include both listed and  nonlisted numbers, were generated from “banks” of numbers (the  telephone area code, exchange, and next two digits of the phone number)  assigned to different regions of the country.
To enable GAO to make relatively precise estimates of knowledge and  behavior within selected subgroups, we oversampled phone numbers likely  to include a relatively high proportion of these subgroup members. The  sample was designed to include a relatively higher proportion of responses  from (1) the seven states where consumers could receive at least one free  credit report per year prior to implementation of the FACT Act, (2) African  Americans, (3) Hispanics, and (4) nonminorities with annual family  incomes under $25,000. A minimum number of interviews was specified  for each of these subgroups. The quotas were achieved in ways that  distributed the oversampled interviews naturally across the population.  For example, the seven-state oversample was drawn in proportion to the  population sizes of each state, and the oversamples for the minority  subgroups were spread across geographic areas that had predicted  incidences of minorities of as low as 48 percent, so as not to sample in only  the most concentrated minority areas. A minimum sample was also set for  nonminorities with annual family incomes under $25,000, but no additional  oversample was necessary to achieve that target.
The 1578 respondents included 300 Black/African American (non-Hispanic)  respondents, 300 respondents of Spanish, Hispanic, or Latino origin  (Hispanics), 302 non-Hispanic, non-Black/African American respondents  with current total annual family incomes of less than $25,000, and 676  nonminority respondents with incomes of $25,000 or greater. In addition,  324 of the above respondents resided in the seven free credit report  states—Colorado, Georgia, Maine, Maryland, Massachusetts, New Jersey,  and Vermont.
Initially, the selection of respondents within each household reached was  also randomized. After determining the number of adults in the household  who were 18 years of age or older, the interviewer selected the person with  the most recent birthday to respond to the survey. This random selection of  household members was suspended, however, in some calls to  oversampled subgroups when the initially selected respondent was not  available for the interview and the person answering the phone met the  criteria for the quota. GAO decided that the need to obtain sufficient  interviews with subgroup members outweighed the advantages of  complete randomness in selecting consumers to interview.
section_title: Developing the Questionnaire
paragraphs: To develop areas of inquiry for the survey, we reviewed previous GAO work  related to credit reports, agency materials, and previous surveys that asked  questions about financial knowledge and credit reporting issues. We  considered questionnaires from multiple organizations such as, the AARP,  the Federal Reserve Board (FRB), the Jump$tart Coalition, and CFA and  obtained suggestions on questions from these organizations based on their  experiences. We used these sources and our own analysis to develop an  initial set of questions that (1) measured knowledge at varying degrees of  difficulty, (2) had one correct answer among several plausible ones, and (3)  covered different aspects of credit reporting knowledge (e.g. where credit  reports and scores come from, what they are used for, and what factors  influence them). In addition, we developed questions about consumers’  experience with credit reports, credit scores, and the dispute process and  their perceptions of these documents and processes. For example, we  asked consumers if they had obtained a credit report or score, if they had  ever disputed information on a credit report, whom they would contact  first in the case of a dispute, and whether they believed that their credit  report was understandable.
In addition to internal review by a GAO survey methodologist, we obtained  expert reviews of our draft questionnaire from the FTC, the FRB, the Office  of the Comptroller of the Currency (OCC), the Federal Deposit Insurance  Corporation (FDIC), Treasury, AARP, CFA, the Fair Isaac Corporation, the  three national credit reporting agencies (CRAs), CDIA, and a survey  research contractor. The survey also included a number of questions on the  respondent’s familiarity with Social Security benefit statements, collected  for use in another GAO engagement.
The questionnaire was translated into Spanish. To develop the Spanish  version, we obtained information on credit reporting issues that had  already been translated from various entities. For example, we obtained  the Spanish versions of FDIC’s MoneySmart curriculum and Freddie Mac’s  CreditSmart curriculum. After our general review, we contracted with the  U.S. Department of State to perform the actual translation. After the State  Department completed its work, GAO staff reviewed the survey to identify  any words that were overly formal or technical, and we made some  adjustments to the survey.
We further developed and refined the questions by conducting pretests of  successive drafts of the questionnaire with members of various  demographic groups. Overall, we conducted 17 pretests, including 5 in  Spanish. After the questionnaire was programmed for use as a computer- assisted telephone interview script, AOS Inc., one of the two call centers  conducting the interviews, conducted a pilot test of over 20 calls to a  random sample of U.S. households in late July 2004, and we made final  revisions to the questionnaire as a result. See Appendix II for a  reproduction of the final questionnaire administered.
section_title: Administering the Survey
paragraphs: Interviewers were trained in the use of the questionnaire and background  material to answer respondents’ questions about the survey. In addition,  bilingual interviewers were available during fieldwork if an interview had  to be conducted in Spanish. Data collection on the survey began on July 22,  2004 and ended October 7, 2004.
The survey contractor implemented the sample by first conducting a  limited number of interviews in a nationwide sample to obtain some  minorities, low-income residents, and residents of the seven states with  free credit reports, and then began the oversamples of high-minority and  seven-state areas to fully meet the subgroup requirements. The quota of 300  low income, nonminority respondents was met in calling in the nationwide  and other oversample groups, without an additional oversample being  drawn for this group.
Calls were made throughout the week at various times to maximize the  chance of finding someone at home. A minimum of 10 attempts, at different  times and days of the week, were made to call back working numbers that  were not answered.
In addition to repeated calling, other techniques were used to increase  response rates. Messages were left on answering machines for potential  respondents offering a toll free number that the respondent could call  during business hours. After hours, a recorded announcement requested  that the caller leave the date and time for a callback. GAO staff were also  available by telephone to answer respondents’ questions and address  concerns about the survey. Nonrespondents were offered cash incentives  of $10 when recontacted to solicit their participation.
To increase participation in the survey, in mid-August a reverse directory  was used to identify mailing addresses for 1,417 nonresponding numbers.
Postcards were subsequently sent to these households with an appeal to  participate when interviewers next called. An additional 537 postcards  were mailed in early September. A second telephone survey call center  began making interviews in mid-August to complete the fieldwork at a  faster rate.
section_title: Survey Response
paragraphs: We received a total of 1,578 usable responses, for an overall response rate  of 48 percent. We calculated the response rate as the total number of usable  (complete and partially complete responses) surveys divided by the total  eligible sample called. In determining the total eligible sample, we  excluded numbers discovered to be nonworking, disconnected, businesses,  or otherwise not households with members eligible to be interviewed in  one of the sample categories with quotas still to be met. Calls to people in  groups for which quotas had already been met were also deemed ineligible.  We also assumed that a proportion of those working numbers attempted at  least 10 times without an answer were also not eligible. The proportion of  eligibility among those not contacted was estimated using practices  commonly followed in the survey research industry. That is, the same  proportion of eligible respondents found among those phone numbers  actually contacted and determined to be eligible or ineligible was applied to  numbers not contacted and of unknown eligibility.
The cooperation rate for the survey was 59 percent. The cooperation rate  measures the success at completing interviews with contacted people who  are determined to be eligible. It is defined as the number of complete  interviews divided by the total number of complete and partial interviews,  refusals, and callbacks that were arranged but not completed. The  difference between the response rate of 48 percent and the cooperation  rate of 59 percent suggests that the difficulty in contacting anyone at the  phone numbers generated was a significant factor in the low response rate,  because interviewers were able to convince nearly 60 percent of those they  contacted to complete the survey.
In addition to nonresponse to the entire survey, respondents could choose  not to answer individual questions. This item-level nonresponse was  uniformly low in the survey, usually 1 percent or less. Eleven percent of  respondents declined to answer the income question, which had the  highest item nonresponse rate.
Table 3 indicates that call outcomes varied somewhat by sample subgroup.  Response rates were somewhat lower among the samples of high minority  areas, particularly those targeted to meet the Hispanic subgroup quotas.    The same pattern was observed for cooperation rates.
section_title: Survey Error and Data Quality
paragraphs: The practical difficulties of conducting any sample survey may introduce  errors into estimates made from them. These errors include sampling,  coverage, measurement, nonresponse, and processing errors. We made  efforts to minimize each of these.
Because we followed a probability procedure based on random selections,  our sample is only one of a large number of samples that we might have  drawn, and thus our results are subject to sampling error. Since each  sample could have provided different estimates, we express our confidence  in the precision of our particular sample’s results as a 95 percent  confidence interval around each estimate—for example, plus or minus 10  percentage points. That is, we are 95 percent confident that each of the  confidence intervals for estimates in this report will include the true value  that we would have obtained had the entire population been surveyed. All  percentage estimates from this survey have confidence intervals of plus or  minus 6 percentage points or less, unless otherwise noted.
Coverage errors in survey estimates can occur from the failure of the  sample to adequately cover the actual study population.   While our sample  included households with unlisted as well as listed numbers, we were able  to reach only people in households with telephones, estimated at  approximately 95 percent of U.S. households. The randomly generated  phone numbers we called do not include cellular phone exchanges,  resulting in undercoverage of those households reachable only through  cellular phones. In addition, we sampled a higher proportion of some  subgroups. To adjust the interviewed sample so that it would be  representative of the country as a whole, weights were developed to  statistically adjust the contribution each interview made towards the total.  Interviews in the 7 states were weighted down so that the proportion of  interviews conducted in those states would match the ratio of population in  those 7 states to the population of the nation, as determined by the U.S.  Bureau of the Census. Similar adjustments were made to the responses  resulting from the other oversamples: African Americans, Hispanics, and  low-income non-minorities. Additional weight adjustments were made for  age and gender to conform to national distributions (app. II and V show the  proportion of socio-economic and experience variables of respondents to  our survey).
We attempted to minimize measurement errors arising from respondents  who accidentally or purposely misreported, or from interviewer mistakes  in administering the questions. In addition to the quality assurance steps  described above in developing the questions so they would accurately  measure the concepts of interest, the survey contractor silently monitored  some interviews on a daily basis, and provided feedback and coaching to  interviewers to improve data collection. In questions that are meant  specifically to test the knowledge of the respondent, guessing can result in  correct answers by chance and might reflect an artificially high level of  knowledge. To counteract this tendency, we explicitly allowed respondents  to specify that they did not know answers in our interview and asked  multiple knowledge questions to lessen the effects of guessing on our  overall analysis of knowledge. We also asked some open-ended questions  without categories to choose from.
In addition, behaviors such as ordering a credit report or seeing a credit  score may be overreported because respondents wish to appear diligent to  interviewers or have mistaken one type of information for another.  However, others may tend to underreport these behaviors because of a  failure to recall distant events, or similarly because they mistake one type  of information for another. We have no additional information on the extent  or direction of this kind of error. However, we compared our results with  those of other surveys and found them to be generally similar.
Nonresponse error can arise in the form of bias from not obtaining  interviews from nonrespondents who would have differed in their answers  from those who did respond. Our response rate of 48 percent, while  comparable to or higher than many other telephone surveys of this type,  means that we do not know how 52 percent of the population would have  responded. We do not know the impact this level of nonresponse has on  our results. While this level of nonresponse may affect survey results, GAO  believes the overall response rate is sufficient for the conclusions drawn  from the results, and can be generalized to the population of U.S. adults age  18 and older.
A final source of error is data processing error, or mistakes made in  capturing or analyzing the data. In addition to the safeguards and checks  built into the Computer Assisted Telephone Interviewing (CATI) software,  after the survey, GAO performed checks on the survey data and verified the  analysis programming. The reliability of the coding of open-ended answers  into categories was assessed by having multiple coders review the same  open-ended responses and comparing their answers for consistency.
section_title: Survey Data Analysis
paragraphs: Our survey included a total of 58 questions. The survey questions were  created to test consumers’ knowledge of credit reporting issues, obtain  their opinions about these issues, and examine their experiences with the  credit reporting process. Overall, there were 23 knowledge questions (with  56 associated points) on the survey divided into 3 separate sections: credit  report knowledge, credit score knowledge, and dispute knowledge. We also  incorporated 22 questions designed to obtain consumers’ opinions about  these issues and to examine their experiences with the credit reporting  process, as well as 13 demographic questions. In addition, there was one  knowledge question that asked consumers about the FACT Act.
Most of the questions had pre-coded answers, but some were open-ended  requiring unassisted responses. For example, there were 3 open-ended  knowledge questions (4, 7, and 43) that asked consumers to provide their  own explanation of what credit reporting agencies do, what credit reports  are, and what credit scores are. Some of the multiple-choice questions had  one part, while others had several parts. If a respondent gave a correct  answer to a multiple-choice question or sub-part of a question, we awarded  them one point for that question or subpart, respectively. No points were  given for an incorrect answer, for refusing to answer, or for an answer of  “don’t know.” For the open-ended questions, we first developed and tested  the following scoring criteria: a respondent received no points if their  response was clearly incorrect or they said they did not know, one point if  their response was only partially correct or if their response was correct  but vague, and two points if their response was more detailed and fully  correct. Then, two team members separately reviewed and scored each  open-ended response. After all the responses were scored, a third member  of the team separately reviewed the assigned scores and adjudicated any  differences in the scores between the other two team members.
Based on the 23 knowledge questions, a respondent could earn a total of 56  points; 37 points based on 14 questions on the credit report section, 12  points based on 4 questions on the credit score section, and 4 points based  on 4 questions on the dispute section. In addition, consumers could earn 3  additional points by answering one question about the FACT Act.
We generated an average or mean score for the survey as a whole. We then  analyzed responses for all of the survey questions and scores based on  groups of questions for the national sample and cross-tabulated them  across different demographic groups and across consumers with different  credit-related experiences, see appendix IV for a discussion of these  results. In addition, an electronic appendix (app. VI) including additional  subgroup results can be found on GAO’s Web site at http://www.gao.gov/  cgi-bin/getrpt?GAO-05-411SP. We also reviewed responses to survey  questions about consumers’ experiences and opinions. Differences across  demographic groups and across consumers with different credit-related  experiences were tested for statistical significance at the 95-percent  confidence level. In addition to cross-tabulations, we used a regression  analysis of demographic and other factors that we thought would be  associated with consumers’ knowledge of credit reporting issues. For a full  discussion of the regression analysis, see appendix V.
section_title: Interviews and Secondary Analysis
paragraphs: To develop our survey and obtain additional data on consumers’ knowledge  and awareness of credit reporting issues, we reviewed existing sample  surveys and other studies conducted by other organizations and agencies  on financial literacy, credit reports and scores, and the dispute resolution  process. We also obtained relevant data from the 3 national CRAs. Surveys  and other studies examining financial literacy and credit reporting issues  have been conducted by several agencies and organizations, including  AARP, FRB, CFA, FTC, U.S. Public Interest Research Group (also known as  the National Association of State PIRGs), Fannie Mae Foundation, Freddie  Mac, members of the Financial Services Roundtable, Credit Research  Center of Georgetown University (CRC), Jump$tart Coalition, CDIA, the 3  national CRAs, and Fair Isaac Corporation. The focus of these studies  varies—some examine credit-related issues, such as identity theft; others  were conducted for marketing purposes; and others deal with financial  literacy in general. For a listing of selected findings from some of these  studies, please see appendix III.
While we made an attempt to assess the methodology of these studies, we  were not able to collect enough information from study sponsors to fully  determine the quality of their results. Of the surveys we identified, we  included in Appendix III only those which appeared to use a probability- based sample of a defined population. The surveys that met these criteria  were typically random-digit dialing (RDD) telephone surveys of U.S.  households. Because each survey or other study we chose to report in  Appendix III had limitations and risk of error in estimates, we report only  selected results for comparative and background purposes. We did not  publish detailed results from these surveys because of the possibility of  errors that we could not assess. Results from these surveys are best  considered in the context of other evidence that might corroborate or  disconfirm findings from individual studies.
To obtain information on financial literacy efforts in general and on credit  reporting in particular, and to obtain organizational experience with the  credit reporting process and the credit reporting industry, we spoke with  most of the members of the Financial Literacy and Education Commission  (FLEC) and other organizations, including FTC, FRB, Chicago Federal  Reserve, OCC, FDIC, Office of Thrift Supervision (OTS), Securities and  Exchange Commission (SEC), Commodity Futures Trading Commission  (CFTC), Social Security Administration (SSA), National Credit Union  Association (NCUA), Federal National Mortgage Association (Fannie Mae),  Freddie Mac, and the Departments of the Treasury, Labor, Education,  Defense, and Agriculture. We also spoke with many industry  representatives, including those from academia, nonprofit organizations  and consumer agencies such as: The Partnership to Protect Consumer  Credit, National Council of La Raza, Financial Services Roundtable, Fair  Isaac Corporation, CDIA, AARP, CRC, CFA, Case Western Reserve  University, American Savings Education Council (ASEC), and the  Employee Benefits Research Institute (EBRI). We conducted our review in  Washington, D.C. from March 2004 through February 2005 in accordance  with generally accepted government auditing standards.
section_title: Survey Questionnaire
paragraphs: NOTE:  Questions used to assess overall knowledge are indicated by a “.”  The point value used  in the assessment is shown after the star (in parenthesis).  Correct responses to these knowledge  questions are outlined. 1.  Am I speaking to someone who lives in this household who is age 18 or older?   2.  How many adults age 18 years or older live in your household?  3.  Of these adults, who had the most recent birthday?  4.  If I say a company is a “credit reporting agency,” also known as a “credit bureau” or  “consumer reporting agency,” how would you describe what they do?  (2 points)
Verbatim responses are not shown, but analysis of these responses showed that 28% definitely did  not have an understanding of what a credit reporting agency does; 53% were at least partially correct  and showed a possible understanding (1 point); 19% showed a clear understanding (2 points). 5.  To the best of your knowledge, which of the following phrases best describes a “credit reporting  agency”?  (1 point)  a)  a company that lends you money—3% b)  an organization that helps you get out of debt—4% c)  an organization that gathers information about your credit history and provides that information  to others for a fee—82%   d)  a government agency that regulates banks, or—2% e)  don’t know—10% 6.  Can you name any of the nationwide credit reporting agencies?
Correct responses include “Experian,” “Equifax,” and “TransUnion.” Respondents received an  additional point if they named “Innovis.”  (1 point) (1 point) (1 point) (1 point)
Respondent unable to name any credit reporting agencies—67% 7.  In your own words, what is a credit report? (2 points)
Verbatim responses are not shown, but analysis of these responses showed that % did not know  what a credit report was; 63% were at least partially correct and showed a possible understanding of  a credit report (1 point); 19% showed a clear understanding (2 points).  8.  If you want to see your own credit report, when are you able to order a copy?  (1 point)  a) at any time for any reason—71% b) only when you are taking out a loan—8% c) only when you have been turned down for a loan—6% e) don’t know—14% 9.  Where would you get a copy of your credit report?
VERBATIM RESPONSES NOT SHOWN.  Responses collapsed into the following categories:  the Internet/online (in general)—26%  CRA/Credit Bureau (in general)—25% from a bank/financial institution—12%  CRA (named specifically)—6% the internet/online (named CRA specifically)—3% from the institution where you applied for a loan—3%  credit card companies—1%  an 800 number—1% from the government—0%  other—3%  don’t know—19% 10.  Some states have laws that allow residents to receive one or more free credit reports a year.  Is  your state one of these?  (1 point)
Did NOT live in state that  “Don’t know”
62%  11.  If you don’t live in a state that allows residents to receive one free credit report a year, about  how much will a credit reporting agency charge you for a copy of your credit report?(1 point)
Provided a Correct Response—45%  Provided an Incorrect Response—10%  Don’t know—% 12.  When a credit report is prepared on someone, the information can come from different sources.
Please tell me which of the following sources you believe it can come from by answering yes, no,  or don’t know.    a)  from banks and other lenders?  (1 point) b)  from courthouse and other public records?  (1 point)
46%  30%  24%  c)  from credit card companies?  (1 point) d)  from debt collectors?  (1 point) 13.  After you take out a loan, a lender may provide information to a credit reporting agency about  the loan and your history of paying it back. How many credit reporting agencies are lenders  required to report to?   (1 point)  d) Don’t know—57% 14.  For each of the following items, please tell me if you think it is or is not on a credit report or if  you don’t know whether it is on a credit report?  a)  Social Security number?  (1 point) b)  bankruptcies?  (1 point) c)  credit history such as credit card balances?  (1 point) d)  race?  (1 point ) e) income? (1 point) f)  a list of those who have requested and received your credit report? (point) g)  balances in your checking account?  (1 point)
21% 15.  If you do not pay your credit card bill, can the credit card company report this on your credit  report?  (1 point)  a) Yes—92% b) No—2% c) Don’t know—6% 16.  For about how long does information, such as making a late payment or going bankrupt,  remain on your credit report? (1 point)
VERBATIM RESPONSES NOT SHOWN.  Responses collapsed into the following categories:  Provided a Correct Response—47%  Provided an Incorrect Response—26%  Don’t know—27% 17.  Who is permitted to see your credit report without your consent?  Please respond by answering  yes, no, or don’t know.  a)  a potential employer?  (1 point) b)  someone who has a need for your credit history in connection with  a product or service that you have requested?  (1 point) c)  anyone who wants to view it?  (1 point) d)  someone who has a court order?  (1 point) 18.  Do you think your credit history can affect the following things? Please answer yes, no, or don’t  know. a)  your ability to get a loan?  (1 point) b)  the interest rate you are charged for a loan?  (1 point) c)  your ability to receive Social Security benefits?  (1 point) d)  insurance coverage and/or premiums?  (1 point) e)  whether an employer decides to hire you?   (1 point) f)  your ability to get a driver’s license?  (1 point) g)  whether a landlord decides to rent to you?  (1 point)
36% 42% 22% 33% 50% 17% 72% 15% 12% 19.  Have you ever viewed your credit report?
Go to question #26 20.  When did you last see your credit report? Was it…  a) within the last year—45% b) 1 to 2 years ago—20% c) more than 2 but fewer than 5 years ago—20% d) 5 or more years ago—15% e) Don’t know—1% 21.  When you last saw your credit report, did you order it yourself or was it ordered by someone  else?
Go to question #23 22.  Who?
VERBATIM RESPONSES NOT SHOWN.  Responses collapsed into the following categories:   Mortgage company—29%  Bank/financial institution—25%  Lender (in general)—16%  Car dealership—12%  Credit card company—4%  Don’t remember—4%  Family member—2%  Employer—1%  Other—7% 23.  Why was your last credit report ordered?  Was it...  a)  due to an adverse action, such as denial of credit, based on your  credit report?  b)  because you suspected fraud and/or identity theft?
8% 91% 1% c)  because you were looking for a job?
1% 98% 1% d)  because you were making a large purchase or refinancing, such as a  home or car? e) to check for completeness and accuracy?
47% 52% 1% f) for another reason?  Please specify.
10% 88% 1%  (VERBATIM RESPONSES NOT SHOWN)  24.  If respondent provided more than one answer to #23:  What was your primary reason?  a) due to an adverse action, such as denial of credit, based on your credit report—9% b) because you suspected fraud and/or identity theft—5% c) because you were looking for a job—1% d) because you were making a large purchase or refinancing, such as a home or car—46% e) to check for completeness and accuracy—29% f) for another reason—10% *NOTE:  Responses to Questions 23 and 24 were combined to report on primary  reasons for all responses:   because you were making a large purchase or refinancing, such as a home or car—48% to check for completeness and accuracy—30%  due to an adverse action, such as denial of credit, based on your credit report—8%  because you suspected fraud and/or identity theft—4%  because you were looking for a job—1% 25.  Overall, did you find the information on your credit report or reports…  a) very easy to understand—37% b) somewhat easy to understand—42% c) somewhat hard to understand—14% d) very hard to understand—4% e) unsure/don’t know—3% The next few questions have to do with dispute resolution.  26.  If you feel information on your credit report is wrong, can you dispute, or request that a  correction be made?  (1 point)
Yes—90% No—2% Don’t know—9% 27.  Do you think you need to check your credit report from time to time for possible errors?
Yes—86% No—10% Don’t know—4% 28.  Imagine you are looking at your credit report and see that a lender has incorrectly reported  that you have made a late payment.  Which of the following would you contact first to dispute  this error?  a) the lender—64% b) the credit reporting agency—18% c) the Better Business Bureau—4% d) other (please specify)—1%  (VERBATIM RESPONSES NOT SHOWN)  e) don’t know—13% 29.  If your credit report has incorrect information that you want corrected, the credit reporting  agency:  (1 point)  a) will charge you a set fee to investigate the information—9% b) will investigate for no cost—28% c) will charge an hourly rate to investigate the information—2% d) don’t know—60% 30.  While they are investigating disputed information, the credit reporting agency is required to do  which of the following:  a) note the information as under investigation—34% b) notify other credit reporting agencies about the investigation—10% c) do nothing— 6% d) don’t know—50% 31.  By law, if you are unable to resolve a disputed item with a credit reporting agency…                      (1 point)  a) you have the right to delete the information from your credit report—5% b) you have the right to add a statement to your credit report—41% c) you cannot do anything—7% d) don’t know—47% 32.  If you resolve an inaccuracy on your credit report with one credit reporting agency, will the  same inaccuracy automatically be corrected by all credit reporting agencies?  (1 point)
Yes—20% No—40% Don’t know—40% 33.  With which government agency would you file a complaint if you are not satisfied with a credit  reporting agency’s work?
VERBATIM RESPONSES NOT SHOWN.  Responses collapsed into the following categories:  Federal Trade Commission or FTC—6% Don’t know  62% 34.  Have you ever actually tried to dispute or correct information that you felt was inaccurate on  your credit report?
Yes—18% No—81%  GO TO QUESTION #41 Don’t know—1%  GO TO QUESTION #41 35.  What type of information did you dispute?
VERBATIM RESPONSES NOT SHOWN.  Responses collapsed into the following categories:   Things that were not mine—17% Incorrect credit card information—13% Incorrect information from a former spouse—3% 36.  When was the last time you disputed information on your credit report?  a) within the last year—29% b) 1 to 2 years ago—17% c) more than 2 but less than 5 years ago—18% d) 5 or more years ago—36% e) Don’t know—1% 37.  Who did you contact to dispute this information?  a) the lender—29% b) a credit reporting agency—32% c) both the lender and the credit reporting agency—30% d) some other agency—6%  IF YES, PLEASE SPECIFY  VERBATIM RESPONSES NOT SHOWN e) Don’t know—3% 38.  Was the information determined to be inaccurate and removed from your credit report?
Yes—69% No—23%   Don’t know—7%    GO TO QUESTION #40  GO TO QUESTION #40 39.  After the inaccurate information was removed from your credit report, was this information  later reinserted?
Yes—13% No—72% Don’t know—15% 40.  Did you add a statement to your report explaining your dispute?
Yes—30% No—66% Don’t know—4% 41.  Have you ever been a victim of identity theft?
Yes—10% No—89% Don’t know—2% 42.  Do you know anyone who has been a victim of identity theft?
Yes—29% No—70% Don’t know—1% The next few questions have to do with your credit score knowledge.  43.  In your own words, what is a credit score?  (2 points)
Verbatim responses are not shown, but analysis of these responses showed that % did not know  what a credit score was; 53% were at least partially correct and showed a possible understanding of  a credit score (1 point); and 15% showed a clear understanding (2 points).  44.  OK, so which of the following best describes a credit score?  Would you say it is a score that …  (1 point)  a) measures your knowledge of consumer credit—6% b) predicts the likelihood that you will repay a loan—70% c) measures your total wealth—3% d) don’t know—21% 45.  Do you think the following situations affect your credit score in a positive way, has no effect,  affects your score in a negative way, or don’t know.  a)  having a credit history for a short time?  (1 point) b)  having a credit history for a long time?  (1 point) c)  having a low checking account balance?  (1 point) d)  frequently applying for new credit?  (1 point)  e)  making late payments on your credit card?  (1 point) f)  using most of the credit available to you?  (1 point) g)  skipping a loan payment that is due?  (1 point) h)  requesting a copy of your own credit report?  (1 point)
15% 12% 49% 24% 43% 29% 24% 11% 10% 60% 19% 15% 12% 52% 21% 21% 50% 10% 19% 46.  What do you think a possible credit score, based on someone’s credit history, is?  Please provide  a number … (1 point)  Provided a score within legitimate range—28% Provided a score outside legitimate range—28%  Don’t know—44%  47.  Have you ever obtained your credit score?
Yes—33% No—64% Unsure/don’t know—3% 48.  There is a new law that affects your rights regarding credit reports and scores. Which of the  following changes will be made?  Please respond by answering yes, no, or don’t know.  a)  all consumers will be entitled to request one free credit  report a year?  (1 point) b)  all lenders must report to all three credit reporting  c) agencies?  (1 point) the use of credit scores by lenders will be prohibited.   (1 point)
Now we have a few questions that will only be used for analysis purposes.   *Demographic questions #49 through 51 were collapsed for the following results:   White—69%   Black—12%   Hispanic—14%   Other—5%  49.  Are you of Spanish, Hispanic, or Latino origin?
No, not Spanish/Hispanic  GO TO QUESTION #51 Yes  CONTINUE TO #50 THEN SKIP TO QUESTION #52 Don't know  GO TO QUESTION #51 Refused  GO TO QUESTION #51 50.  You have told us that you are of Hispanic origin.  Now I am going to read a list of categories.
Please choose one or more of the following categories to describe your race:  White, Black or  African American, American Indian, Alaska Native, Asian, Native Hawaiian, Pacific Islander, or  any other category?
Other                Please Specify:  __________________________ 51. Now, I am going to read a list of categories. Please choose one or more of the following  categories to describe your race:  White, Black or African American, American Indian, Alaska  Native, Asian, Native Hawaiian or other Pacific Islander?
Refused  52.  What year were you born?
24 and under (at least 18 years old)—13%  25 to 34—19%  35 to 44—22%  45 to 54—18%  55 to 64—12%  65 and older—17% 53. Are you Male or Female?   54. What is the highest grade or level of regular school you have completed?  8th grade or less  9th to 11th *Less than high school—10% 12th Grade/GED/High School Diploma  *High school—30% Associate's degree  *Some postsecondary education—28%Bachelor's degree (BA; BS)
Graduate/professional degree (MA; MS; PhD; EdD: Medicine/MD; Dentistry/DDS; Law/JD; Etc.)  55.  How would you describe your current employment status?  Would you say you are …  Other—5%  56.  Different people have different types of financial accounts, investments and loans.  We don’t  want to know the amounts, but have you ever had any of the following?  a)  a checking account?  b)  a credit card?  c)  an automobile loan?  d)  a mortgage or home loan?  e)  a savings account or certificate of deposit?  f)  a mutual fund?  g)  stocks in individual companies?  h)  government bonds?  57.   Now for the final question, I am going to read a list of income categories.  Which category best  represents your total combined income during the past 12 months of all the members of your  family? This includes money from jobs; net income from business, tips, farm or rent; pensions;  dividends; interest; social security payments; and other income or money received.
Less than $25,000—24%  $25,000—$49,999—25%  $50,000—$74,999—19%  $75,000 or more—22%  58.  We understand that you would prefer not to tell us your actual income, but could you just  confirm if it is less than $25,000 or over $25,000?  (For the 10% who refused on Question 57)
section_title: Review of Selected Findings from Other Studies
paragraphs: GAO conducted a literature search to identify some of the relevant  non-GAO sample surveys and other studies on consumers’ knowledge of  credit reporting issues, the extent to which consumers review their credit  reports and scores and their reasons for doing so, and other related  matters. We attempted to evaluate the quality of the data and findings of  these reports, but the limited methodological documentation available to  us prevented a thorough review. We included only those surveys for which  we had some indication that a random sample of a known population,  typically a nationwide random-digit dial telephone survey of U.S. adults,  had been conducted. However, due to possible shortcomings in important  design aspects of these studies that are not known, the possibility for error  still exists in each of these studies. Therefore, GAO does not consider any  one estimate from the following studies to be sufficiently accurate to base  conclusions on. However, in the aggregate, these other results may serve as  a general comparison to the GAO survey of U.S. consumers and provide a  background description of what other researchers have reported on these  issues.
section_title: Certain Demographics and Credit Experiences Are Associated with Consumers’ Understanding of Credit Reporting Issues
paragraphs: Using two methodologies—a regression analysis and cross-tabulation  analysis—that generally provided consistent conclusions, we found that  certain factors were associated with consumers’ knowledge of credit  reporting issues. First, we found that having experience with credit—for  example, having an automobile loan or a mortgage—and the credit  reporting process had a statistically significant effect on consumers’  knowledge of credit issues. In addition, we found that certain demographic  factors, such as educational level, income level, race/ethnicity, and age had  a significant effect on consumers’ awareness of these issues. Finally, we  found that other factors, including gender and residence in one of the seven  “free report states,” did not have a significant effect on consumers’ credit  reporting knowledge.
subsections: section_title: Those with Less Education and Lower Incomes Scored Lower on Our Survey
paragraphs: Our survey results show that awareness of credit reporting issues generally  increased as a consumers’ educational level increased. This trend was most  evident for those with less than a high school education. As figure 10  shows, consumers with less than a high school education had a lower mean  score overall (36 percent) than those with a high school education or more  (at least 52 percent). Our regression analysis also confirmed that increases  in educational level had a significant effect on consumers’ knowledge. For  example, compared with having less than a high school degree, having  earned at least a bachelor’s degree could increase scores by more than 13  percentage points.
In addition, as educational level increased, consumers obtained reports and  scores and disputed information more often than those with less education.  Figure 11 shows at least 50 percent of those with a high school education or  more had viewed their credit reports, compared with 25 percent of  consumers with less than a high school education. Similarly, at least 23  percent of consumers with a high school education or more had obtained  their scores, compared with 9 percent of consumers with less than a high  school education. Further, those with some postsecondary education  disputed more frequently than those with less education (22 percent versus  7–13 percent, respectively).
We also found that consumers with less than a high school degree were less  aware of credit reporting issues in several areas, including the “basic”  questions, than those with more education (table 5). For example, we  found that those with less than a high school degree were less able to  identify the correct definition of a credit reporting agency (CRA) (44  percent) than those with higher levels of education (74 percent and more).
These consumers were also less aware that they had the right to check  their credit reports at any time for any reason and less likely to know that  skipping loan payments and making late credit card payments had a  negative effect on their credit scores. We found that 10 percent of  consumers with less than a high school education named the Internet as a  source for obtaining their credit report, compared with 24 percent or more  of those with a high school education or more.
Consumers with relatively low household incomes were also less aware of  issues related to credit reports, credit scores, and the dispute process than  consumers in higher-income households. For example, those in the lowest  household income group (less than $25,000 annually) correctly answered  an average of 47 percent of survey questions, while those in the highest  household income group ($75,000 and above annually) answered around 63  percent (fig. 10). Our regression model confirmed these results and found  that income had a significant effect on knowledge. For example, a  consumer with a household income of less than $25,000 per year could  score almost 3 percentage points lower on the overall survey than a  consumer with a higher household income.
The percentage of consumers who had viewed their reports and scores and  disputed inaccurate information generally increased with household  income level (fig. 12). For example, of those consumers with household  incomes of $25,000 or less, 38 percent had viewed their credit reports, 19  percent had obtained their scores, and 10 percent had undertaken the  dispute process (fig. 12). In contrast, of those consumers with household  incomes of $75,000 or more, 75 percent had viewed their credit report, 49  percent had obtained their credit score, and 24 percent had undertaken the  dispute process.
Consumers with relatively low household incomes— in particular, those in  households making less than $25,000—generally were less aware of issues  pertaining to credit reports, scores, and the dispute process compared with  those in higher income groups (table 6). For example, consumers in  households making less than $25,000 were less likely than those in  households making $50,000 or more to know that their credit history could  affect the interest rates lenders offered them. In addition, consumers in the  lowest household income group were less likely to name the Internet as a  place to go for one’s credit report compared with other household income  groups (about 17 percent compared with 32–36 percent). Finally, the  differences in knowledge between lower- and higher-income consumers  were most pronounced for credit scores. For example, 44 percent of  consumers in the lowest household income group knew that frequently  applying for credit affected scores negatively, compared with 78 percent of  consumers in the highest income group.
section_title: Race/Ethnicity Was Associated with Differences in Survey Scores
paragraphs: We also found that race/ethnicity was associated with consumers’  knowledge of credit reporting issues. We found that African Americans and  whites scored similarly, showing approximately equal levels of knowledge,  while Hispanics scored consistently lower on our survey. As shown in  figure 10, African Americans earned an average score on the survey of 55  percent, whites had a score of 58 percent, and Hispanics earned 43 percent.  The regression confirmed these findings. It showed that being African  American rather than white had no significant effect on consumer’s scores  but that being Hispanic could decrease survey scores by approximately 6  percentage points compared with whites (holding other variables, such as  education and income constant).
As shown in Figure 13, we found that African Americans and whites were  almost equally as likely to have viewed their credit reports and obtained  their credit scores and that Hispanics were less likely to have done either.  More African Americans than whites said that they had ordered their credit  reports themselves—65 percent compared with 50 percent of whites. In  addition, more African Americans (15 percent) than whites (6 percent) said  that they had ordered their reports because of adverse action.
Table 7 highlights some specific survey responses for each racial/ethnic  group, including responses that varied somewhat from overall survey  scores. Whites and African-Americans scored similarly on the survey and  consistently higher than Hispanics. For example, 84 percent of African  Americans and 92 percent of whites knew that skipping loan payments  could lower their credit score. And around the same percentage of both  groups (about 90 percent) knew that they could dispute information on  their credit reports. As shown in table 7, Hispanics scored lower on these  questions. However, when asked whether race appeared on credit reports,  Hispanics scored virtually the same as African Americans, though still  lower than whites. Finally, we found that more whites (35 percent) named  the Internet as a source for obtaining their credit reports than African  Americans (18 percent) and Hispanics (16 percent).
Our survey findings are consistent with information we collected during  interviews with federal agencies and other organizations, including the  National Council of La Raza (La Raza). The Federal Deposit Insurance  Corporation (FDIC), the Office of the Comptroller of the Currency (OCC),  and FTC told us that their financial literacy efforts are often targeted at  certain populations, including Hispanics, who may more often be  “unbanked” or less financially literate. Government officials and  representatives of other organizations, including La Raza, discussed the  need for financial literacy programs among the low-income Latino  community. They also told us that some Latinos tend to avoid debt, making  them less likely to obtain credit and thus less likely to have experience with  credit reports and scores. In our survey, we found that more white  consumers had experience with credit-related products than African  Americans or Hispanics, with Hispanics having the least amount of  experience (table 8).
section_title: Younger and Older Consumers Scored Lower on Our Survey
paragraphs: Our cross-tabulation analysis showed that consumers’ knowledge of credit  reporting issues also differed with age and that the youngest consumers  (aged 18 to 24) and the oldest (aged 65 and older) were the least likely to  have obtained a credit report or score or to have undertaken the dispute  process. In the regression, each 1-year increase in the respondent’s age was  associated with about a tenth of a percentage point decrease in the  respondent’s total knowledge score. The mean scores for credit  knowledge for consumers in the six age groups ranged from 49 to 60  percent, with the youngest and oldest groups having the lowest scores (fig.  10).
We found that experience with the credit reporting process also varied  somewhat by age (fig. 14). For example, 24 percent of the youngest  consumers and 42 percent of the oldest had ordered their credit reports,  compared with 61 to 74 percent of all other age groups. In addition, 7  percent of the youngest consumers and 17 percent of the oldest consumers  had obtained their credit scores, compared with 33 to 48 percent of those in  all other age groups. The differences were similar for dispute, with 7  percent of the youngest group and 10 percent of the oldest disputing  information in their credit reports; in comparison, 16 to 27 percent in all  other age groups reported having disputed information.
According to our survey, consumers in the youngest and oldest age groups  also knew fewer details about credit reports and scores than those in other  age groups (table 9). For instance, 18 percent of those aged 18 to 24 knew  that their credit history could affect employment decisions—an issue of  particular importance to persons in this age group, who are likely to be  engaging in their first job search—while 29 to 46 percent of those in all  other age groups knew this fact. In addition, fewer consumers aged 18 to  24—55 percent—and those aged 65 and over—60 percent—could identify  the correct definition of a credit score compared with consumers in other  age groups (table 9). Younger consumers were also less aware that having  had a credit history for a short time could affect scores negatively,  especially when compared with those aged 25 to 34 (41 percent compared  with 61 percent). In addition, 71 percent of consumers aged 65 and over  said they should check their credit reports from time to time, while 88 to 92  percent of consumers in all other age groups said they should. Finally, 14  percent of consumers in the oldest age group named the Internet as a  source for obtaining their credit report, while 29 to 37 percent of those in  all other age groups cited the Internet.
section_title: Actively Employed Consumers Scored Slightly Higher on Our Survey
paragraphs: We also analyzed survey results for consumers in different employment  groups and found some differences. Specifically, we found that actively  employed consumers working either full or part time showed slightly more  knowledge of credit reporting issues than any other group answering 59  percent of the survey questions correctly. Students and unemployed  consumers (including homemakers, retirees, and those lacking any job)  had somewhat lower scores—53 percent for students and 49 percent for  consumers who were unemployed. However, our regression analysis  showed that students made up the only employment group that had a  significant effect and that their employment status could potentially lower  their scores by about 3 percentage points.
As figure 15 shows, we also found that actively employed consumers were  more likely to obtain their credit reports and scores than consumers in  other employment categories. However, we found little difference among  the percentages of those in each employment group that reported having  disputed information on their credit reports.
Table 10 highlights some other responses to specific survey questions  among the employment groups. Also, more students and unemployed  consumers were unable to name any CRAs (84 percent and 79 percent,  respectively), while 59 percent of actively employed consumers were  unable to name any.
section_title: Consumers with Credit Experiences Scored Higher on Our Survey
paragraphs: Our analysis also showed that consumers who had viewed their reports,  obtained their scores, or disputed information demonstrated more  knowledge of credit reporting issues. Our findings are consistent with  expert opinion in the field of financial literacy. Several experts have noted  that consumers who have experience with a financial product or  transaction—in other words, those who have been able to “learn by  doing”—are better informed about financial products and transactions than  those who lack experience. Specifically, as shown in figure 16, we found  that consumers who had viewed their credit reports had a higher average  survey score—62 percent—than those who had not—47 percent.  Consumers who had seen their credit scores were better informed about  credit issues, with a mean survey score of 64 percent, while those who had  not obtained their scores had a mean survey score of 51 percent. Those  consumers who had undertaken the dispute process also demonstrated  increased knowledge. Those who had disputed had a mean score of 65  percent, while those who had not had a mean score of 53 percent. Our  regression analysis also confirmed that having viewed a report or score or  having disputed were associated with an increase in the consumer’s total  knowledge score. Each experience was associated with at least a 4  percentage point increase in the total knowledge score.
Table 11 shows some of the differences in selected survey responses for  those consumers who had obtained their credit reports and scores and had  engaged in the dispute process and those who had not had these  experiences. We found that having one of these three experiences could  increase responses to certain questions by almost 20 percent—for instance,  knowing how long information remained on a credit report or that  frequently applying for new credit could have a negative effect on a credit  score.
Second, we found that consumers with certain types of credit experiences,  such as having had either an automobile loan or a home loan/mortgage,  scored higher on the overall survey and that more of these consumers had  viewed their credit reports and scores and disputed information on their  reports (fig. 17). As we have seen, consumers who had obtained either an  automobile loan or a mortgage—about 74 percent of consumers—had  higher overall scores than those who had not (fig. 16). The regression  showed that having an automobile loan or mortgage had a significant effect  and could increase a consumer’s score by around 4 percentage points.
Table 12 highlights some of the larger differences in survey responses  between consumers who had had automobile loans or mortgages and those  who had not. For example, consumers who had had automobile loans or  mortgages were most familiar with some of the factors that might or might  not affect credit scores—frequently applying for credit, having low  checking account balances, and using most of the credit available to  them—than consumers who had not had such loans.
section_title: Being a Victim of Identity Theft and Being from a Free Report State Had Little Effect on Consumers’ Survey Scores
paragraphs: Government and industry officials told us that certain experiences,  including having been a victim of identity theft or having requested a credit  report because of an adverse action such as denial of credit, might increase  consumers’ knowledge of credit issues. However, we found that these  experiences did not affect consumers’ overall scores. As figure 16 shows,  consumers who said they had been victims of identity theft (approximately  10 percent of our survey respondents) scored only slightly higher than  other consumers. The regression analysis showed that being a victim of  identity theft did not have a significant effect on consumers’ knowledge.  Similarly, consumers who had obtained their credit report because of an  adverse action scored only slightly higher than those who had not.
Although we did not see large differences in the overall knowledge of credit  issues between those who had been victims of identity theft and those who  had not been, we found that identity theft victims were more likely to  obtain their credit reports (72 percent versus 56 percent). In addition, we  found that victims of identity theft disputed information more frequently  than those who had not had this experience. Of those who had disputed,  identity theft victims had information removed from their reports less  frequently than other consumers who had disputed (48 percent versus 74  percent) and were more likely to add an explanatory statement. Further,  we found that consumers who had been victims of identity theft had more  knowledge of certain details about credit reporting than consumers who  had not been victims. More—53 percent—knew that correcting  information with one CRA did not mean that the others would also make  the correction, compared with 39 percent of other consumers. In addition,  like all other groups, victims of identity theft did not name the Federal  Trade Commission (FTC) as the agency to contact if they had a problem  with a CRA, although Congress designated FTC as the agency that handles  the identity theft claims of consumers. The number of identity theft  complaints filed with FTC doubled every year between November 1999 and  2002, and in 2003 FTC received about 215,000 identity theft complaints.  Similarly, we did not see large differences in overall knowledge between  those who had obtained their report because of an adverse action and  those who had not. However, we found that consumers who had had an  adverse action against them were more likely to dispute information. These  consumers were also far more likely to order their reports themselves than  those who had not had this experience (78 percent versus 49 percent).
We also looked at consumers who live in free report states—one of the  seven states where residents could order a free copy of their credit report  annually before the FACT Act was passed (about 21 percent of  respondents). On the basis of our discussions with government and  industry officials, we decided to test whether these consumers would have  more knowledge about credit reporting issues than consumers in states  where free reports were not available. As figure 10 shows, consumers  residing in free report states had only slightly higher survey scores than  consumers who did not (59 percent compared with 55 percent). The  regression analysis showed no significant effect for those living in a free  report state compared with those that did not. TransUnion, one of the three  nationwide CRAs, found in a 2003 study that around 4 percent of  consumers in free report states had requested their reports, compared with  around 2 percent of consumers in other states. Colorado was the  exception, with more than 10 percent requesting their reports, possibly  because consumers were notified of this right by mail under two specific  circumstances. Our study showed that 46 percent of consumers in free  report states said that they did not know they had the right to order a free  credit report.
Finally, we assessed the effect of gender (male versus female) on  consumers’ knowledge and found that gender did not impact consumers’  knowledge of credit reporting, with males and females having similar  overall survey scores—57 percent and 54 percent, respectively (see fig. 10).  The regression model also showed that gender did not have a significant  independent effect on knowledge of credit issues. In addition,  approximately the same percentages of males and females had obtained  their credit reports and scores and had disputed information. Further, we  found few specific areas in which knowledge differed between genders.  Among those we did find, females were somewhat more likely to know  how long negative information remained on a credit report (51 percent  compared with 42 percent of males) and to say that they had added a  written statement to their report after a dispute (38 percent, compared with  21 percent of males). In contrast, males were slightly more likely to know  that their credit history could affect the interest rate charged on a loan (85  percent compared with 77 percent of females) and that having had a credit  history for a short time had a negative effect on their credit score (54  percent, compared with 44 percent of females).
section_title: A Regression Model to Explain Differences in Total Knowledge Scores
paragraphs: This appendix provides more detail on the regression model that GAO  developed to explain how different variables such as education are  associated with the survey scores, or the “total credit reporting knowledge  scores,” discussed in the body of the report. Such a model can be used to  illustrate the influences of different independent variables on the total  knowledge score. In the first section, we describe the variables used in the  model. In the next two sections, we describe the structure of the model and  the statistical results. In the last section, we discuss our interpretation of  the regression model.
subsections: section_title: Variables in the Model
paragraphs: The model includes variables taken from the survey that represent  consumers’ experience with the credit and financial system, and  consumers’ socio-economic characteristics that might influence  consumers’ knowledge of credit reporting issues. Table 13 shows the  proportion of socio-economic and experience variables of respondents to  our survey. There are many factors that might potentially affect knowledge  and this model only considered those that we asked respondents about in  our survey. Specifically, the socio-economic variables are: race/ethnicity,  age, income, employment status, gender, and education. The race/ethnicity  variable tests whether certain racial or ethnic groups systematically score  differently on the survey. Age is included because of concerns that younger  and older consumers may be less aware of the importance of credit reports  and scores. The income variable tests the influence of different levels of a  household’s annual income on total scores and the employment status  variable tests for the influences of having full- or part-time work, or none at  all, as well as being a student. The gender variable is included to determine  whether males and females have a different understanding of credit  reporting issues. Education levels are included to determine whether  consumers’ level of formal education influence total knowledge scores.
Several variables reflect factors that we believe could directly affect  consumers’ experience with and knowledge of credit reporting. For  example, living in a state where consumers receive copies of their credit  reports free each year before the passage of the FACT Act is included  because we hypothesized that having this right might have encouraged  more individuals to look at their credit reports, which could increase their  credit reporting knowledge. Similarly, we thought that having had a  mortgage or an automobile loan could mean that consumers were more  likely to know more about credit reporting issues. We included having seen  a credit report or credit score, disputing information on a credit report, and  experiencing identity theft to assess the possible influence of these  experiences on a consumer’s understanding of credit reporting issues.
section_title: The Structure of the Model
paragraphs: This multiple regression model is designed to estimate how various  independent variables influence the dependent variable – total knowledge  score (results are presented in table 14). Evaluating a multiple regression  requires considering both the influence of each independent variable on the  dependent variable (the total knowledge score, or the percent correct  answers) and the statistical significance of the estimates. Total scores are  cumulative and represent the sum of the influences of all the independent  variables in the model.
Much of the data puts consumers into categories (i.e. whether or not one  has completed high school or different income categories) and is called  categorical data. When categorical data is used for variables there is always  a base state and the variable information shows whether the consumer is in  or not in that base state. For example, in the case of gender, being female is  the base state. Thus being a male increases the total knowledge score on  average by about six-tenths of a percentage point as compared to being  female. Other binary variables are constructed in a similar manner. Several  categorical variables have multiple states. For example, there are four  states of education with having less than a high school degree being the  base state. In general, a consumer who has completed high school will have  about a 9 percentage point increase in his total knowledge score as  compared to a consumer who never finished high school, while having  completed college increases the total knowledge score on average by about  14 percentage points over the base case. Other multiple state variables are  constructed in a similar manner.
section_title: The Statistical Results
paragraphs: The model shows that the independent variables explain about 45 percent  of the variation in the total knowledge score as shown in the R statistic.  Most of the independent variables in the model are statistically significant,  and their influences are reasonable. For example, having a relatively high  household income or educational level increases the total knowledge score  as shown in table 14. For several variables, the influences are statistically  significant. If an effect is statistically significant we can reject the null  hypothesis that the variable in question has no influence on the consumer’s  total knowledge score, i.e. the variable does influence the total knowledge  score. In our analysis, a coefficient is considered statistically significant if  the p-value for the t-test is less than 0.05.
In the following discussion of the regression model, we usually address the  statistically significant coefficients. Statistically insignificant coefficients  are discussed only when they have important implications. When  discussing each variable we assume that all other variables are being held  constant. As a result, the coefficient of each independent variable shows,  on average, its independent influence on the total knowledge score.
The regression shows that socio-economic factors influence scores. The  consumer’s race/ethnicity can influence the total knowledge score. For  example, in the model Hispanics will score about 6 percentage points lower  than whites on average, holding all other variables constant. Age also  influences the score with each additional year lowering the score by one- tenth of 1 percentage point. In addition, those with incomes above $25,000  have higher total knowledge scores than those earning less than $25,000  per year. For example, consumers earning between $25,000 and $49,999  scored about 3 percentage points higher than those earning less than  $25,000. But only one employment state variable is significant—being a  student rather than working full or part time. According to our model,  students score about 3 percentage points less on average than those  employed full or part time. Finally, knowledge increases with educational  levels, so that those who finish high school score about 9 percentage points  higher on average than those who have not.
We tested how living in a free credit report state, having experienced  identity theft, and experience with credit and the financial system can  influence total knowledge scores. Living in a free report state and having  experienced identity theft had no statistically significant effect on the total  knowledge scores. Having a mortgage or an automobile loan increases a  consumer’s score by about 4 percentage points on average. Similarly,  having seen a credit report raises the total knowledge score by about 5  percentage points. Having seen a credit score increased the consumer’s  total knowledge score, on average, by about 4 percentage points, while  having disputed a credit report increased the consumer’s total knowledge  score by about 5 percentage points. These increases in scores are  consistent with a belief that increased experience with credit and credit  reporting improves the consumer’s knowledge of these issues.
section_title: Using the Regression to Illustrate the Simultaneous Influences of Several Variables
paragraphs: A multiple regression shows the simultaneous and cumulative influences of  all the independent variables on the total knowledge score. In contrast,  cross-tabulations show differences in average total knowledge scores for  different populations and do not allow the independent influences of  various factors to be separated. The average scores from the cross- tabulations reflect the cumulative influences of all the independent  variables. For example, consumers from high-income households are likely  to also be highly educated and to have a car loan or mortgage. Thus their  average score is generally higher than scores for those with lower  household incomes because of the positive influences of several variables.
To illustrate this tendency, we constructed two “straw” consumers and  used the statistical model to predict their total knowledge scores as  reported in table 15. In constructing our two “straw” consumers and  showing how their total knowledge scores vary based on differences in the  values of the independent variables, we are assuming that our model is  reasonable and representative of consumer behaviors.
Consumer 1 is a 25-year-old male Hispanic with a household income of less  than $25,000 a year, who does not have a high school degree, does not have  an automobile loan or mortgage, and has no experience with credit reports  or scores. Consumer 2 is also a 25-year-old male Hispanic, but with at least  a college degree, an automobile loan or mortgage, and some experience  with credit reports and scores. The model allows us to determine the  influences of the independent variables on the total knowledge scores for  each of these consumers. According to the model, consumer 1 would score  about 33 percent, while consume 2 would score about 63 percent. Changing  the race/ethnicity of both consumers to white raises the scores to about 39  percent and 69 percent, respectively. The differences in the scores reflect  the effects of a number of individual variables.
section_title: Web Appendix on Credit Reporting Literacy Survey Data
paragraphs: This document presents survey data for all respondents, as well as cross- tabulation results for demographic and other subpopulations of  respondents, and can be found on GAO’s Web site at http://www.gao.gov/  cgi-bin/getrpt?GAO-05-411SP.
section_title: Comment from the Department of the Treasury
section_title: Comments from the Federal Trade Commission
paragraphs: The following are GAO’s comments to FTC’s letter dated March 4, 2005.
subsections: section_title: GAO Comments
paragraphs: Referring to our finding that respondents did not understand that resolving  a dispute with one credit bureau would not result in automatic correction  of the inaccuracy in every credit bureau’s file, FTC suggested a  clarification. FTC stated that FCRA “requires that information corrected by  a consumer in the file of one of the three national credit bureaus be  automatically corrected with all three bureaus” (citing FCRA sections  623(b)(1)(D), 611(a)(5)(D). We believe that FTC overstates the effect of  these provisions.
First, except for information obtained fraudulently or through identity  theft, FCRA does not require a CRA to notify other CRAs that information  in its files is inaccurate or incomplete. Instead, the process described by  FTC depends upon furnishers to notify CRAs of corrections to disputed  information. Specifically, under section 623(b)(1)(D), if a furnisher receives  notice from a CRA that information the furnisher provided has been  disputed by a consumer, the furnisher must conduct an investigation and, if  the furnisher finds the disputed information to be incomplete or  inaccurate, the furnisher must report the finding to all nationwide CRAs to  whom the furnisher provided the information. Because of these provisions,  a dispute with one CRA generally should result in the correction of the  disputed information maintained by the other CRAs. However, this would  occur only if all of the CRAs obtained the disputed information from the  same furnisher. Section 623(b)(1)(D) does not address situations where  CRAs obtained the disputed information from different sources. Moreover,  if a furnisher has gone out of business, the process under section  623(b)(1)(D) would not ensure that erroneous information the furnisher  gave to multiple CRAs would be corrected where a consumer initiated a  dispute with only one CRA. Assuming that the CRA could not verify the  information, it would have to be deleted. The CRA is not required to report  the deletion to other CRAs. With respect to section 611(a)(5)(D), we note  that the section requires CRAs to establish an automated system that  furnishers may use to report findings of incomplete or inaccurate  information to other CRAs, but it appears that a furnishers’ use of this  system would be optional.
section_title: GAO Contacts and Staff Acknowledgements
subsections: section_title: GAO Contacts
section_title: Staff Acknowledgements
paragraphs: In addition to those named above, Allison M. Abrams, Davi D’Agostino,  Jason A. Bromberg, Emily R. Chalmers, Marc W. Molino, Mona E. Nichols,  Jennifer R. Popovic, Mitchell B. Rachlis, Carl M. Ramirez, Terry L.  Richardson, Sidney H. Schwartz, Paul G. Thompson, and Wendy B.  Wierzbicki also made key contributions to this report.
We also acknowledge the GAO staff that provided invaluable assistance  translating our survey into Spanish, Roberto R. Piñero, Benjamin A.  Fenderlein, Josie H. Sigl, and Dan Garcia-Diaz.
Special thanks to Heather T. Dignan, Jack E. Edwards, Marion A. Gatling,  Richard J. Hillman, Harry Medina, George A. Scott, and Richard M. Stana.