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Most Difficulty With The Basics Of Credit – Do You? Try this quiz


Financial literacy is not widely taught in the American education system, leaving many consumers to learn how to manage money through trial and error. So it’s no surprise that, according to a NerdWallet survey, Americans lack basic knowledge about credit cards and credit scores. But what they don’t know could hurt them.

NerdWallet commissioned an online survey, conducted by Harris Poll in February 2016, of more than 2,000 American adults. We asked consumers about their knowledge of credit cards and credit scoring. Take the quiz below, or jump to our conclusions:

Our discoveries

Here’s what we found about Americans’ credit literacy:

  • Most Americans don’t know the effect that many common stocks have on their credit rating.

  • Only 9% know that most consumers have more than three different credit scores.

  • Over half (55%) don’t know when they start charging interest on credit card purchases.

To add further context to our findings, we spoke to Sean McQuay, NerdWallet resident credit card expert and former Visa Strategy Analyst. McQuay explained why the lack of basic knowledge about credit cards and scores is important so that we can provide consumers with useful tips for their financial lives.

Common but costly mistakes hurt consumer credit scores

A good credit rating helps you get better terms from lenders, including lower interest rates on loans and better rewards on credit cards. Good credit could also help you get lower insurance rates, rent an apartment, and even get a job. Unfortunately, our survey results show that most consumers don’t know how common actions affect their credit, which can hurt their scores.

Reality: Carrying a balance from month to month doesn’t help you build credit

Poll says: More than half of Americans (54%) don’t know that having a credit card balance doesn’t improve a person’s credit score.

Our expert says: “Using your credit card or other type of credit account is important to building a strong credit rating. But the only thing a balance will do will be costs you money. Consumers who do not pay off their card each month are charged interest on the average daily balance on that card. Sometimes interest charges are unavoidable, but you can’t pay for good credit through interest charges.

Here is what you need to do: Pay your credit card bill in full every month, if possible. While it’s important to use cards regularly to keep them open and active, it’s absolutely a myth that you have to have a balance and pay interest on it to help your credit.

Fact: Closing an old card hurts your credit score rather than helping it

Poll says: Nearly eight in 10 Americans (78%) don’t know that closing an old, redeemed credit card is hurting their score.

Our expert says:Closing an old credit card can damage your credit by reducing the amount of your available credit, which increases the use of your credit. The use of credit is the second most important factor in your credit score, so closing a card can have a big negative impact on your score. Unless your card has an annual fee and you are not using it, you should not cancel an old refunded card.

Here is what you need to do: Keep your old account open and active. The easiest way to do this is to automate a small bill, like a monthly subscription, to post on your old card, and then pay it off each month. Consider setting up automatic payment on this account to make it even easier. This will ensure that your account is not closed due to inactivity.

If you are sure you want to close an account, do these five steps before doing so to minimize any negative impact.

Reality: Late payment can be costly, but it probably won’t hurt your credit

Poll says: Only 8% of Americans know how late paying a credit card bill affects their credit score.

Our expert says: “Eighty-two percent of Americans responded that paying a late bill will always hurt a credit score. But contrary to popular belief, late payment doesn’t necessarily mean damage to your credit. If you pay within 30 days of your due date, the blunder will likely not be reported to the credit bureaus.

Here is what you need to do: While you don’t have to pay your bill on time for a good credit score, you should. Even though there is no impact on credit, most credit cards charge late fees. Late payments may also result in the cancellation of an introductory interest rate of 0%, an APR plus penalty applied to your account, or both. Consult your card’s statement of benefits for more details.

Fact: Having multiple credit cards doesn’t directly affect your FICO score

Poll says: More than nine in 10 Americans (91%) don’t realize that having multiple cards doesn’t impact their credit score.

Our expert says: “While each new card application can lower your short-term credit score by a few points, having multiple cards does not in itself help or hurt your credit. In fact, there are some non-credit benefits of having multiple cards, including the ability to maximize rewards earned and have a replacement if your primary card is lost or stolen. There is also an indirect credit benefit of having more cards – you’ll have a higher overall limit, which reduces your credit usage. “

Here is what you need to do: We recommend that you have a minimum of two credit cards in case a card is lost or stolen, or if the network is not accepted by some merchants. If you’re new to credit cards, space out your requests by at least six months to minimize the negative impact on credit.

Consumers don’t really know what “credit score” really means

You can get a credit score from many places, but Americans aren’t clear about the differences between them – or, in many cases, don’t know there are even are differences.

Fact: There are hundreds of credit scoring models in use.

Poll says: Only 9% of Americans know that most consumers have more than three different credit scores.

Our expert says: “The term ‘credit score’ is often pronounced in the singular, which leads many to believe that they only have one rating. And while some consumers know that there are different scores calculated from data from the three credit bureaus, few are aware of the many scoring models that determine hundreds of credit scores. “

Here is what you need to do: Understand that there are many different scores, but not all of them are equally valid. Most lenders use the FICO model, not owner scores calculated using a credit bureau’s own model – and certainly not scores from free scoring sites. You can get your FICO scores by purchasing them from the three major credit bureaus – TransUnion, Equifax, and Experian – or by accessing them through any of the many credit card issuers who provide them free of charge to cardholders.

Lack of Credit Card Knowledge Costs Consumers Interest and Rewards

When you use credit cards correctly, you can earn rewards while enjoying certain purchase protections and what amounts to an interest-free loan. But according to our survey, consumers lack basic knowledge about credit cards that could cost them in several ways, including interest charges and lost rewards.

Reality: Interest does not accrue immediately and does not have to accrue at all

Poll says: More than half of Americans (55%) don’t know when they start charging interest on credit card purchases.

Our expert says: “Three in 10 Americans believe interest starts accruing immediately after a purchase. This could explain the aversion to credit cards that so many consumers have. But you don’t start earning interest until the day after your payment is due, and you won’t owe any interest if you pay your bill in full by the due date each month.

Here is what you need to do: Pay your bill in full each month and you won’t have to worry about interest payments. However, if you must carry a scale, it is important to understand how interest is calculated and how to minimize it.

Reality: Credit card issuers don’t make all of their money from consumers

Poll says: Nearly three in ten Americans (29%) don’t know that credit card companies make money by charging merchants who accept the cards a fee.

Our expert says: “Some consumers are against credit cards because they think the issuers are predatory and earn all their money from consumers pay interest and fees. Although issuers make a lot of money from interest charges and other fees, this is not the only source of credit card revenue. Almost a third of consumers don’t realize that credit card companies also make money by charging merchants who accept credit cards a small percentage of each transaction.

Here is what you need to do: Understand that credit card companies earn their money from both consumers and merchants, and use that knowledge. By paying your bill in full each month, you will avoid paying interest and you can save more by avoid unnecessary costs. You can also choose to pay cash when shopping at small businesses to limit the fees paid by your favorite mom-and-pop stores.

Reality: Annual fees pay off for some cardholders

Poll says: Only 40% of Americans know that an annual credit card fee is worth paying if the rewards earned exceed the cost of the fees.

Our expert says: “More than a quarter of Americans (27%) think an annual membership fee is never worth it, and for small spenders, that may be true. But a card with an annual fee can mean higher rewards and better benefits for those who spend enough to justify it and, therefore, should be considered a good plastic option.


This survey was conducted online in the United States by Harris Poll on behalf of NerdWallet from February 11 to 15, 2016, among 2,114 adults aged 18 and over. This online survey is not based on a probability sample and therefore no estimate of theoretical sampling error can be calculated. For a complete survey methodology, including weighting variables, please contact [email protected].