07/06/2013 12:20 pm ET Updated Sep 05, 2013

Credit Scores: Four Reasons Why We're Still Not Getting It

Guess what? We're still confused about credit scores. In its third-annual survey on the subject, the Consumer Federation of American (CFA) tested consumer knowledge of credit scores and student loans in the form of an 18-question survey. (You can take the accompanying quiz to see how you fare.) The results show that a large minority of us are still misunderstanding basic concepts:

  • 38 percent don't know that credit card issuers use credit scores in decisions about credit availability.
  • 40 percent don't know that mortgage lenders use credit scores in decisions about credit availability and pricing.
  • 43 percent think age is used in calculating credit scores.
  • 40 percent think that marital status is used in calculating credit scores.

So what's the deal? Credit scores have been around since the 1970s, so why are we still so confused about them?

Possibility #1: We have a lack education.

The Consumer Financial Protection Bureau (CFPB) recently weighed in on this in "Transforming the Financial Lives of a Generation of Young Americans." The white paper says, "Many young people transition to adulthood without having developed the basic financial knowledge, skills and behaviors that are critical for establishing healthy financial futures." The CFPB proposes a few recommendations, such as introducing financial education concepts early and continuing these programs throughout the K-12 school years, including money management questions in standardized testing, and providing K-12 students hands-on money management learning opportunities.

These recommendations sound great, but it's a long-shot to hope that these concepts stick. It's difficult to explain to a young person the consequences of spending more money than he makes if he's not making any to begin with. I imagine that those of us who learned something about finances before graduation did so through seeing real-world examples. For example, I learned the value of a dollar growing up by watching my dad negotiate the best price on just about everything.

And credit scores? I knew next to nothing until about two years ago, when I came to work for Credit Karma. All of this is not to say that the CFPB's recommendations can't lead to successful programs -- I just don't believe this is the only solution.

Possibility #2: We don't get why it's important to understand.

Am I wrong in thinking that we tend to learn our best lessons from our mistakes, not instruction from others (teachers or parents)? For example, if I have a poor credit score and go to apply for a home loan only to get rejected and get hit with a hard inquiry on my credit report, I actually feel the consequences of me not building up my credit before applying.

But since every situation is different, it's difficult to project the exact consequences, without the aid of a financial advisor or time spent researching (something that we all should do, though we don't always).

Possibility #3: The system is too confusing to begin with.

We're getting much closer to the root of the problem here. Credit scoring is a complicated process. Plus, you have dozens of possible credit scores at any given moment. As Credit Karma's CEO -- and my boss -- Ken Lin has said, "Our pricey FICO score is just one of 49 potential scores a lender uses--and that's only if they use a FICO score. Many lenders are starting to use new score models, like VantageScore, which is a model collaborated on by all three credit bureaus."

Credit scoring itself is complicated. There are a few basic factors that go into scoring, but other factors can come into play as well. And, as mentioned above, it's up to the lender to decide which model he or she wants to use to assess your creditworthiness.

Possibility #4: We're actually not supposed to understand.

This is a big part of why we're still confused about credit scores and why this survey will continue revealing that, year after year. Credit scores were not initially made for consumer use -- they were made as a business to give creditors and lenders a more standardized way of determining whether or not they should lend to a consumer. They were built to help them assess the risk of doing business with us -- not to help us to assess our own financial situation.

Credit scoring is a business. Credit score creators refine and develop multiple models to sell them to credit businesses. It's become such a reliable system that even some non-credit decisions are using credit scores, like insurance and apartment renting.

So what can we do?

In addition to keeping an eye on the development of more consumer-friendly models like VantageScore, we can scrutinize our own credit situations more closely. We can keep informed in the best way possible -- about ourselves -- by monitoring our credit daily, making well-informed decisions, and taking advantage each year of our right to one free copy of our three credit reports.

Bethy Hardeman writes on credit, personal finance and the economy for, a free credit management website that helps more than 13 million people access their credit score for free. Find her on Google Plus and Twitter.