Credit Reporting Literacy: Consumers Understood the Basics but	 
Could Benefit from Targeted Educational Efforts (16-MAR-05,	 
GAO-05-223).							 
                                                                 
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.							 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-05-223 					        
    ACCNO:   A19577						        
  TITLE:     Credit Reporting Literacy: Consumers Understood the      
Basics but Could Benefit from Targeted Educational Efforts	 
     DATE:   03/16/2005 
  SUBJECT:   Consumer education 				 
	     Consumer protection				 
	     Credit						 
	     Credit bureaus					 
	     Data collection					 
	     Federal law					 
	     Federal regulations				 
	     Financial statements				 
	     Information disclosure				 
	     Reporting requirements				 
	     Surveys						 

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GAO-05-223

     

     * Report to Congressional Committees
          * March 2005
     * CREDIT REPORTING LITERACY
          * Consumers Understood the Basics but Could Benefit from Targeted
            Educational Efforts
     * Contents
          * Background
          * Results in Brief
          * Consumers Generally Understood Credit Reports and Had Viewed
            Their Reports, but Many Lacked Specific Knowledge
               * Consumers' Average Survey Scores Were Slightly More Than 50
                 Percent
               * Many Consumers Knew How to Obtain Their Credit Reports
               * The Majority of Consumers Knew Most of What Was in Their
                 Credit Reports
               * Most Consumers Knew Some of the Possible Impacts of Credit
                 Reports and Some Rules Governing Access
               * More Than Half of Consumers Had Seen Their Credit Reports
                 and Found Them Understandable
          * Consumers Had a Basic Understanding of Credit Scores, and About
            One-Third Had Obtained Their Scores
               * Consumers Had a Basic Knowledge of Credit Scores
               * Many Consumers Were Not Familiar with Some Factors That
                 Could Affect Credit Scores
               * Few Consumers Had Obtained Their Credit Scores
          * Consumers' Knowledge of the Dispute Process Was Limited, and Few
            Consumers Had Disputed Information
               * Consumers Knew That They Could Dispute Information but Did
                 Not Understand the Dispute Process or Their Rights
               * The Few Consumers That Tried to Dispute or Correct
                 Information Did So for a Variety of Reasons
          * Certain Demographics and Credit Experiences Are Associated with
            Consumers' Understanding of Credit Reporting Issues
               * Those with Less Education and Lower Incomes Scored Lower on
                 Our Survey
               * Race/Ethnicity Was Associated with Differences in Survey
                 Scores
               * Younger and Older Consumers Scored Lower on Our Survey
               * Consumers with Credit Experience Scored Higher on Our Survey
               * Being a Victim of Identity Theft and Living in a Free Report
                 State Had Little Effect on Consumers' Survey Scores
          * Conclusions
          * Recommendations for Executive Action
          * Agency Comments and Our Evaluation
     * Objectives, Scope, and Methodology
          * Scope and Methodology
          * Design of the Telephone Sample
          * Developing the Questionnaire
          * Administering the Survey
          * Survey Response
          * Survey Error and Data Quality
          * Survey Data Analysis
          * Interviews and Secondary Analysis
     * Survey Questionnaire
     * Review of Selected Findings from Other Studies
     * Certain Demographics and Credit Experiences Are Associated with
       Consumers' Understanding of Credit Reporting Issues
          * Those with Less Education and Lower Incomes Scored Lower on Our
            Survey
          * Race/Ethnicity Was Associated with Differences in Survey Scores
          * Younger and Older Consumers Scored Lower on Our Survey
          * Actively Employed Consumers Scored Slightly Higher on Our Survey
          * Consumers with Credit Experiences Scored Higher on Our Survey
          * Being a Victim of Identity Theft and Being from a Free Report
            State Had Little Effect on Consumers' Survey Scores
     * A Regression Model to Explain Differences in Total Knowledge Scores
          * Variables in the Model
          * The Structure of the Model
          * The Statistical Results
          * Using the Regression to Illustrate the Simultaneous Influences of
            Several Variables
     * Web Appendix on Credit Reporting Literacy Survey Data
     * Comment from the Department of the Treasury
     * Comments from the Federal Trade Commission
          * GAO Comments
     * GAO Contacts and Staff Acknowledgements
          * GAO Contacts
          * Staff Acknowledgements

                 United States Government Accountability Office

Report to Congressional Committees

GAO

March 2005

CREDIT REPORTING LITERACY

  Consumers Understood the Basics but Could Benefit from Targeted Educational
                                    Efforts

                                       a

GAO-05-223

CREDIT REPORTING LITERACY

Consumers Understood the Basics but Could Benefit from Targeted
Educational Efforts

  What GAO Found

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.

                 United States Government Accountability Office

Contents

Letter 1
Background 5
Results in Brief 10
Consumers Generally Understood Credit Reports and Had Viewed Their
Reports, but Many Lacked Specific Knowledge 12
Consumers Had a Basic Understanding of Credit Scores, and About One-Third
Had Obtained Their Scores 23
Consumers' Knowledge of the Dispute Process Was Limited, and Few Consumers
Had Disputed Information 28
Certain Demographics and Credit Experiences Are Associated with Consumers'
Understanding of Credit Reporting Issues 33
Conclusions 44
Recommendations for Executive Action 45
Agency Comments and Our Evaluation 46
Appendixes
:Objectives, Scope, and Methodology 49
Scope and Methodology 49
Design of the Telephone Sample 49
Developing the Questionnaire 51
Administering the Survey 52
Survey Response 53
Survey Error and Data Quality 55
Survey Data Analysis 57
Interviews and Secondary Analysis 58
:Survey Questionnaire 60
:Review of Selected Findings from Other Studies 73
: Certain Demographics and Credit Experiences Are Associated with
Consumers' Understanding of Credit Reporting Issues 83
Those with Less Education and Lower Incomes Scored Lower on Our Survey 83
Race/Ethnicity Was Associated with Differences in Survey Scores 89
Younger and Older Consumers Scored Lower on Our Survey 92
Actively Employed Consumers Scored Slightly Higher on Our Survey 95
Consumers with Credit Experiences Scored Higher on Our Survey 97

                                    Contents

                                  Appendix V:

                                  Appendix VI:

                          Appendix VII: Appendix VIII:

                                  Appendix IX:

Being a Victim of Identity Theft and Being from a Free Report State
Had Little Effect on Consumers' Survey Scores                          101 
A Regression Model to Explain Differences in Total                   
Knowledge Scores                                                       104 
Variables in the Model                                                 104 
The Structure of the Model                                             106 
The Statistical Results                                                108 
Using the Regression to Illustrate the Simultaneous Influences of    
Several Variables                                                      109 
Web Appendix on Credit Reporting Literacy Survey Data                
Available at http://www.gao.gov/cgi-bin/                             
getrep?GAO-05-411SP                                                    112 
Comments from the Department of the Treasury                           113 
Comments from the Federal Trade Commission                             115 
GAO Comments                                                           120 
GAO Contacts and Staff Acknowledgements                                121 
GAO Contacts                                                           121 
Staff Acknowledgements                                                 121 
Table 1:   Selected Survey Responses by Race/Ethnicity                  38 
Table 2:   Experience with Credit-Related Products and Race/         
              Ethnicity                                                    39 
Table 3:   Sample Dispositions and Response Rates                       54 
Table 4:   Review of Selected Findings from Other Studies               73 
Table 5:   Selected Survey Responses and Educational Level              86 
Table 6:   Selected Survey Responses of Different Household Income   
              Levels                                                       88 
Table 7:   Selected Survey Responses by Race/Ethnicity                  91 
Table 8:   Experience with Credit-Related Products and Race/         
              Ethnicity                                                    92 
Table 9:   Selected Survey Responses by Age Group                       95 
Table 10: Selected Survey Responses by Employment Group                 97 
Table 11: Selected Survey Responses and Consumers' Credit            
Reporting Experience                                                    99 
Table 12: Selected Survey Responses and Experience with              
                 Automobile Loans or Home Loans/Mortgages                 101 
Table 13: Variables in the Statistical Model                           105 
Table 14: A Regression Model to Explain Differences in Total         
Knowledge Scores                                                       107 

  Tables

Contents

Figures

Table 15: Comparing Two Hypothetical Hispanics Using the Regression Model

:Selected Survey Responses to Some Key Questions about Credit Reports 15
:Consumers' Understanding of the Information Credit Reports Contain 17
:Reasons Consumers Viewed their Reports 21
:Factors Affecting Credit Scores 25
:Consumers' Knowledge of the Factors That Affect Credit Scores 27
:Reasons Consumers Disputed Information on Their Credit Reports 31
:Average Total Scores and Demographic Groups 35
:Credit Reporting Experience by Race/Ethnicity 37
:Average Total Scores and Credit Experiences 41
:Average Total Scores and Demographic Groups 84
:Credit Reporting Experience by Educational Level 85
:Credit Reporting Experience and Household Income Level 87
:Credit Reporting Experience by Race/Ethnicity 90
:Credit Reporting Experience by Age Group 93
:Credit Reporting Experience by Employment Group 96
:Average Total Scores and Credit Experience 98
:Credit Reporting Experience and Experience with Automobile Loans or Home
Loans/Mortgages 100

Contents

                                 Abbreviations

AARP             American Association of Retired Persons                   
ASEC             American Savings Education Council                        
CDIA             Consumer Data Industry Association                        
CFA              Consumer Federation of America                            
CFTC             Commodity Futures Trading Commission                      
CRA              Credit Reporting Agency                                   
CRC              Credit Research Center of Georgetown University           
CRS              Congressional Research Service                            
EBRI             Employee Benefit Research Institute                       
FACT Act         Fair and Accurate Credit Transactions Act of 2003         
Fannie Mae       Federal National Mortgage Association                     
FCRA             Fair Credit Reporting Act                                 
FDIC             Federal Deposit Insurance Corporation                     
FLEC             Financial Literacy and Education Commission               
FRB              Federal Reserve Board                                     
Freddie Mac      Federal Home Loan Mortgage Corporation                    
FTC              Federal Trade Commission                                  
La Raza          National Council of La Raza                               
NCUA             National Credit Union Administration                      
OCC              Office of the Comptroller of the Currency                 
OTS              Office of Thrift Supervision                              
SEC              Securities and Exchange Commission                        
SSA              Social Security Administration                            
U.S. PIRG        U.S. Public Interest Research Group (also known as the    
                    National Association of State PIRGs)                      

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A

United States Government Accountability Office Washington, D.C. 20548

March 16, 2005

The Honorable Richard C. Shelby Chairman The Honorable Paul S. Sarbanes
Ranking Minority Member Committee on Banking, Housing, and Urban Affairs
United States Senate

The Honorable Michael G. Oxley Chairman The Honorable Barney Frank Ranking
Minority Member Committee on Financial Services House of Representatives

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.1 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.2 Equifax, Experian, and TransUnion-the

1Estimate developed by the Fair Isaac Corporation and printed on its Web
site on January 19, 2005, at www .myFico.com. These estimates are based on
an interest rate of 5.69 percent for someone with a credit score of
720-850 and 9.29 percent for a consumer with a score of 500-559. Credit
scores are derived using a mathematical model that takes into account the
information contained in credit reports and attempt to predict the
likelihood that a person will repay a loan.

2GAO, Limited Information Exists on the Extent of Credit Report Errors and
Their Implications for Consumers, GAO-03-1036T (Washington, D.C.: July 31,
2003).

three national credit reporting agencies (CRAs)3-each maintain an
estimated 200 million credit files and enter more than 4 billion pieces of
data into these files monthly.4 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 1970.5 FCRA gave the Federal Trade
Commission (FTC) responsibility for enforcing CRAs' compliance with the
act.6 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.7 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

3Companies that assemble consumer credit information and sell this
information are referred to as "consumer reporting agencies" by the
legislation governing credit reports. See Fair Credit Reporting Act, 12
U.S.C. S:S: 1681-1681x, as amended (2004). These companies can also be
referred to as "credit bureaus," "credit reporting companies," or-as they
are in this report-"credit reporting agencies." Equifax, Experian, and
TransUnion Corporation are the nation's largest credit reporting agencies.

4These figures were reported by the Consumer Data Industry Association
(CDIA), the trade association that represents the three national CRAs.
Available at

www.cdiaonline.org/about.cfm.

5Pub. L. No. 91-508, codified as amended at 15 U.S.C. S:S: 1681-1681x.

6Federal agencies and the states have authority to bring injunctive
actions under FCRA, as well as actions for damages for violations of
certain provisions. Under FCRA, as amended by the FACT Act, there are also
private rights of action. See 15 U.S.C. S:S: 1681n, 1681o, 1681s-2(c). In
addition, federally supervised banks that use consumer reports or furnish
consumer report information are subject to enforcement by their respective
federal banking regulators. See 15 U.S.C. S:1681s.

7Pub. L. No. 108-159 (Dec. 4, 2003).

Treasury as the chairperson of FLEC.8 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.9 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

8Members of FLEC include the Secretary of the Treasury, the head of each
federal banking agency and the National Credit Union Association (NCUA);
the Securities and Exchange Commission; the departments of Education,
Agriculture, Defense, Health and Human Services, Housing and Urban
Development, Labor, and Veterans Affairs; Federal Trade Commission; the
General Services Administration; the Small Business Administration; the
Social Security Administration; the Commodity Futures Trading Commission;
and the Office of Personnel Management. In addition, the President may
appoint five additional members.

9Pub. L. No. 108-159 S: 517. This provision also mandated that GAO provide
recommendations for improving general financial literacy among consumers,
a provision addressed in "Highlights of a GAO Forum, The Federal
Government's Role in Improving Financial Literacy," GAO-05-93SP
(Washington, D.C.: Nov. 15, 2004) available at h
ttp://www.gao.gov/docsearch/abstract.php?rptno=GAO-05-93SP. In addition,
the FACT Act directed GAO to conduct two other studies that are currently
ongoing: (1) an assessment of the effectiveness of the provisions relating
to information available to identity theft victims that is due in June
2005 (Section 151), and (2) an assessment of the effectiveness of FLEC in
promoting financial literacy and education that is due in December 2006
(Section 517 (a)).

appendix I for a discussion of response rates).10 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.

10Except where noted, all percentage estimates have sampling errors of +/-
6 percentage points or less at the 95 percent confidence level. In
addition, except where noted, all numerical estimates other than
percentages have margins of error of +/- 5 percent or less of the value of
those numerical estimates. In reporting responses to individual questions,
percentages may not equal 100 because of rounding. See appendix II for
more information on individual survey questions.

Page 4 GAO-05-223 Credit Reporting Literacy

  Background

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.11 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.12 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:

     o 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;
     o Identifying information such as names, addresses, Social Security
       numbers, and employment data (other than salary);
     o 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
     o 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

11Equifax is publicly traded and listed (NYSE: EFX). Experian is not
listed on a U.S. stock exchange, but its parent company is traded on the
London Stock Exchange and listed (LSE: GUS). TransUnion is privately
owned.

12For example, lenders use credit reports and scores to determine what
interest rates to charge consumers based on a perceived level of risk in
what is commonly called "risk-based pricing." See Pub. L. No. 108-159 S:
311. Scores can also be used to determine requirements for collateral,
down payments, or cosigners.

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.13 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:

     o Provided a uniform basis for consumers' access to information in their
       credit reports at a reasonable charge;14
     o Subject to certain exceptions, prohibited CRAs from reporting specific
       types of negative information that was older than 7 years;15
     o 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;16

13The Fair Isaac Corporation produces software used by many consumer
reporting agencies, including the three national CRAs, to produce FICO(R)
scores, which industry sources told us are commonly used in the United
States.

14The act specifically excluded medical information from this provision.
See Pub L. No. 91-508 S: 609 (a)(i).

15Exceptions included credit transactions, life insurance policies, job
salaries that exceeded a specified dollar amount, and bankruptcy data.
Originally bankruptcy data older than 14 years was to be deleted. In 1978,
this period was shortened to 10 years. See Pub. L. No. 95-598.

16If used for employment purposes, CRAs were to identify the sources and
names of those receiving reports within the last 2 years of the consumer's
request; for other purposes, the time period was within the last 6 months.
See Pub. L. No. 91-508 S: 609(a)(3).

     o 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
     o 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.17
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.18 In 1996, Congress amended
FCRA.19 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

17For employment purposes, this requirement for notification applied to
those receiving reports within the 2 years before the deletion or notation
of the dispute; for other purposes, the time period was 6 months before
the deletion or notation. See Pub. L. No. 91-508 S: 611 (d).

18 GAO-03-1036T . Prior to 1996, FTC brought formal enforcement actions
involving procedures to ensure the accuracy of credit reports against
TransUnion in 1983, TRW (which would later become Experian) in 1991, and
Equifax in 1995.

19Consumer Credit Reporting Reform Act of 1996, Pub. L. No. 104-208, Div.
A, Title II, Subtitle D.

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.20 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:

o  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.21 However, according to FTC, seven states already allowed consumers
at least one free copy annually (Colorado, Georgia, Maine, Maryland,
Massachusetts, New Jersey, and Vermont);"22

20A number of studies reported persistent inaccuracies in credit reports.
For instance, GAO reported on the limited amount of information available
on the frequency, type, and cause of credit report errors and their
possible impact on consumers. See GAO-03-1036T.

21Under FTC regulations implementing section 211 of the FACT Act, the
requirement takes effect in a different geographic part of the country
each quarter, beginning on the west coast in December 2004 and ending on
the east coast in September 2005. See 69 Fed. Reg. 35468 (June 24, 2004).

22See 69 Fed. Reg. 35468, 35488 n. 66 (June 24, 2004). Throughout this
report, we refer to these states as "free report states."

     o Expanded creditors' responsibilities for furnishing accurate data.23
       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;24
     o 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
     o 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

23Before the FACT Act, FCRA gave CRAs most of the responsibility for
investigating disputes about inaccurate information and provided consumers
with certain protections, such as time limits on investigations. However,
under FCRA furnishers were required to follow certain requirements. Among
other things, if a furnisher determined that information given to a CRA
was inaccurate, the furnisher was required to notify and provide
corrections to the CRA. If a consumer disputed information furnished to a
CRA, the furnisher could not provide the information to any CRA without
sending notice of the dispute.

24Pub. L. No. 108-159 S: 312 (c). The federal banking agencies include the
Comptroller of the Currency, the Director of the Office of Thrift
Supervision, the Board of Governors of the Federal Reserve System, and the
Federal Deposit Insurance Corporation (FDIC).

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.25 Some private
sector initiatives include the Federal Home Loan Mortgage Corporation's
(Freddie Mac) CreditSmart(R) 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.26 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.27 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.28

Our survey showed that most consumers understood the basic concepts of

  Results in Brief

credit reporting and had seen their credit reports but that many lacked
knowledge of some credit report contents, uses, and other impacts. Based
on our survey responses, we found that many consumers knew how to

25Commenting on a draft of this report, FTC said that in FY 2004, it
distributed more than 4 million print copies of credit publications in
English and Spanish. Consumers also accessed more than 5.7 million copies
using the Internet. In addition, the consumer information page dealing
with credit is consistently one of the most viewed pages on FTC's Web
site.

26Fair Isaac Corporation's Web site is at www.myFICO.com.

27GAO-05-93SP.

28Fox, Lynn, Joy Hoffmann, and Carolyn Welch. "Federal Reserve Personal
Financial Education Initiatives." Federal Reserve Bulletin, Autumn 2002.

obtain their credit reports, most of the information reports contained,
some impacts of their credit history-including its effect on their ability
to obtain loans and the interest rate on loans-and some of the rules
governing access to their reports. However, many consumers lacked other
important information, such as how long information stayed on their
reports and how their credit history could affect insurance premiums and
employment. For example, about two-thirds of consumers did not know that
their credit history could impact their insurance premiums and employment,
and about half (53 percent) did not know that information could stay on
their report for 7 or 10 years. We found that many consumers (almost 60
percent) had viewed their credit reports, most often because they were
making a large purchase or refinancing a loan, and most of these consumers
said that they understood their reports.

The results of our survey also showed that most consumers had a basic
understanding of credit scores and that around one-third had obtained
them. While many consumers (70 percent) correctly identified the
definition of a credit score and understood many of the factors that could
impact credit scores, only 28 percent could provide a number within a
range of possible credit scores. In addition, consumers were more familiar
with some of the factors that affected credit scores than with others. For
example, while most consumers knew that skipping loan payments or making
late credit card payments had a negative effect on credit scores, about
half did not know that using all the credit available to them, such as
reaching the maximum limit on a credit card or home equity loan, had a
negative effect. Also, when asked about information that had no effect on
credit scores (such as a low checking account balance), about half of
consumers answered the questions incorrectly or said that they did not
know.

Most consumers (around 90 percent) knew that they could dispute inaccurate
information on their credit reports, and approximately 18 percent said
that they had initiated a dispute. However, we found that over half of
consumers did not fully understand their rights in the dispute process or
the responsibilities of the CRAs in responding to disputes. For example,
relatively few consumers-about one-third-knew that CRAs 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 with respect to credit reporting by CRAs. The types of information
consumers disputed varied, but among the items most

  Consumers Generally Understood Credit Reports and Had Viewed Their Reports,
  but Many Lacked Specific Knowledge

frequently mentioned were information that did not belong to the
individual and incorrect payment histories-for example, late payments. We
also found that of those who had disputed information, most (69 percent)
reported that they had information removed from their report.

Many factors are associated with consumers' knowledge of credit reporting
issues. We found that some demographic factors and types of experiences
appeared to affect consumers' scores on our survey. For example, less
educated, low-income, and Hispanic consumers scored lower on our survey
than other demographic groups. Additionally, we found that having
experience with credit-for example, obtaining an automobile loan or a
mortgage-and the credit reporting system appeared to raise consumers'
scores. In contrast, we found that other factors and experiences, such as
having been a victim of identity theft, gender, or living in one of the
seven "free report states," had little effect on consumers' credit
reporting knowledge. The factors that appeared to affect consumers'
knowledge of credit issues had a cumulative impact. For example, a
consumer with a college degree, credit experience, and a high income could
score much higher than a consumer with less than a high school education,
relatively low income, and no credit experience.

This report makes recommendations to the Secretary of Treasury and the
Chairman of FTC that are designed to promote efforts to improve the credit
reporting literacy of U.S. consumers. We provided a draft of this report
to the Department of the Treasury and FTC for comment and they provided
written comments that are reprinted in appendixes VII and VIII,
respectively. Both agencies generally agreed with our findings and
outlined efforts underway to improve credit reporting literacy. A summary
of their written comments and our response are presented at the end of
this report.

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

    Consumers' Average Survey Scores Were Slightly More Than 50 Percent

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.

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.29
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).

    Many Consumers Knew How to Obtain Their Credit Reports

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

29Appendix II contains the entire survey instrument, including all the
survey questions and the scoring associated with each knowledge question.

Page 13 GAO-05-223 Credit Reporting Literacy

their credit report. 30 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.31 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.

30Consumer Federation of America (CFA), "Consumers Lack Essential
Knowledge and Strongly Support New Protections on Credit Reporting and
Scores" (Washington, D.C.: July 2003). Unpublished. Information available
from www.consumerfed.org . We did not assess the quality of the data that
we obtained from this and other sources. We used these data for
comparative and background purposes only. Appendix III presents additional
information about this and other studies.

31Some consumers may have guessed at the correct multiple choice option.
In addition, when asked to provide their own explanation of a CRA, some
consumers may have found it difficult to form an articulate response
despite actually knowing what a CRA does. (See app. I for further
discussion of this and related issues.)

 Figure 1: Selected Survey Responses to Some Key Questions about Credit Reports

Correct answers

Incorrect answers

"Don't know" answers Source: GAO.

Note: Percentages in each row may not equal 100 due to rounding. All
survey questions (in the format in which they were asked) and their
responses can be found in appendix II.

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.32 Further,
fewer than half of our respondents-approximately 45 percent-knew the

32CFA, "Consumers Lack Essential Knowledge."

    The Majority of Consumers Knew Most of What Was in Their Credit Reports

cost of a credit report.33 Before the implementation of the FACT Act,
consumers generally had to pay for copies of their credit report in all
but a few circumstances.34 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.

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

33We counted the responses of consumers who said between $8 and $40 as
correct. This range reflects a possible cost of a credit report based on
(1) prices the three nationwide CRAs were charging for credit reports and
credit report-related products at the time the survey was scored, and (2)
information provided to consumers about credit report costs from other
relevant organizations. Although the survey was conducted before the FACT
Act was implemented, we counted responses of "free" as correct because of
the new provision in the FACT Act that allows consumers to receive one
free credit report a year, upon request. "Free in certain instances," was
also counted as correct because of provisions under FCRA. In addition, if
a resident of Minnesota said $3 or a resident of Connecticut said $5,
these responses were counted as correct under these states' laws.

34Under FCRA, before enactment of the FACT Act, consumers could request
and receive a free credit report, upon request, under certain
circumstances. These included (1) receiving notification of an adverse
action, such as a denial of credit that was based on their credit report
(within 60 days of notification), (2) suspecting that information in a
CRA's file was inaccurate due to fraud, such as identity theft, (3) being
unemployed and intending to apply for employment within the next 60 days,
(4) receiving public welfare assistance, (5) receiving an adverse decision
related to their employment based at least in part on a credit report, and
(6) requesting an investigation that resulted in revisions to a report.

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).35

  Figure 2: Consumers' Understanding of the Information Credit Reports Contain

Source: GAO.

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

35Hilgert, Marianne A., Jeanne M. Hogarth, and Sondra G. Beverly,
"Household Financial Management: The Connection between Knowledge and
Behavior," Federal Reserve Bulletin, July 2003.

Page 17 GAO-05-223 Credit Reporting Literacy

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

    Most Consumers Knew Some of the Possible Impacts of Credit Reports and Some
    Rules Governing Access

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.36 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.

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(R) 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

36Since bankruptcies can remain on reports for 10 years and other negative
information can remain for 7 years, we credited respondents with a correct
answer for providing either number of years.

Page 19 GAO-05-223 Credit Reporting Literacy

    More Than Half of Consumers Had Seen Their Credit Reports and Found Them
    Understandable

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.37

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.38 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 2003.39

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:

     o a mortgage company (29 percent),
     o a bank or financial institution (25 percent),
     o a lender in general (16 percent),

37CFA and Providian(R), "Most Consumers Do Not Understand Credit Scores
According to a New Comprehensive Survey," Washington, D.C., July 2004.
Information at w ww.consumerfed.org . CFA had similar findings in its July
2003 study.

38Hilgert, Hogarth, and Beverly, "Household Financial Management."

39CDIA collected this data from the three nationwide CRAs and aggregated
it before providing it to GAO in January 2005. The data on credit files
issued included all direct-to-consumer disclosures (meaning offers to
consumers, for a fee, online products that commonly include file
disclosures, credit scores, credit score analyses, file monitoring, fraud
alert systems, and more) and all consumer relations disclosures
(disclosures made to consumers who contacted a CRA to receive a file
disclosure due to an adverse action, concern about fraud, being unemployed
and seeking employment, or being on public assistance). CDIA told us that
the report request figure was an estimate of total requests by all
consumers and could include multiple requests from the same consumer.

     o a car dealership (12 percent),
     o a credit card company (4 percent), and

o  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).

Figure 3: Reasons Consumers Viewed their Reports 1%

Looking for a job Fraud/identity theft Adverse action Other reason

Check for accuracy

Making a large purchase or refinancing

Source: GAO.

The credit reporting industry has also collected information on the
reasons consumers order their reports.40 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:41

     o 39 percent of respondents looked at their credit reports because they
       were curious,
     o 31 percent were ready to apply for a loan or credit card,
     o 10 percent had been denied credit,
     o 6 percent were concerned about identity theft,
     o 12 percent had some other reason, and
     o 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.

40CDIA presented data collected from the three nationwide CRAs on the
reasons why consumers ordered their credit reports before the Senate
Committee on Banking, Housing, and Urban Affairs on July 10, 2003. CDIA
stated that of the 16 million reports that were being issued by their
members to consumers each year, 84 percent were provided due to adverse
action, 12 percent due to fraud, 5 percent out of curiosity, and less than
1 percent because the consumer was unemployed, seeking employment, or on
public assistance. According to one CRA, these data included only consumer
relations disclosures and not direct-to-consumer disclosures. The 57.4
million reports issued in 2003 included both consumer relations
disclosures and direct-to-consumer disclosures.

41Louis Harris and Associates, Consumer Interest in Free Credit Reports,
2003. Unpublished. Selected findings from this study were provided to GAO
by CDIA.

  Consumers Had a Basic Understanding of Credit Scores, and About One-Third Had
  Obtained Their Scores

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.

    Consumers Had a Basic Knowledge of Credit Scores

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.42 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.43 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).44

42Of the remainder, about 10 percent did not identify the correct
definition of a credit score, and about 20 percent said they did not know
what one was.

43CFA and Providian, "Most Consumers Do Not Understand Credit Scores."

44This range generally reflects the range used by firms that generate
credit scores. FICO credit scores are the standard credit score used by
the industry, and all three major CRAs own FICO models and generate FICO
credit scores. In addition, some of the CRAs have developed their own
credit scoring models and generate their own scores.

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(R)
scores).45 These factors are:

     o Payment history: Paying bills on time can generate a higher score.
     o Amounts owed: Using all available credit can result in a lower score.
     o Length of credit history: Having a credit history for a relatively
       long period of time can result in a higher score.
     o Type of credit: Having a diverse mix of installment (mortgages and
       loans) and revolving credit (credit cards) can generate a higher
       credit score.
     o New credit: Frequently applying for new credit can contribute to a
       lower

46

score.

According to Fair Isaac Corporation, payment history and amounts owed have
the most influence on credit scores (fig. 4).

45As reported on www.myFico.com . The importance of these factors may
differ with other non-FICO credit scores.

46According to Fair Isaac Corporation, its scoring model does not penalize
consumers for "rate shopping." For instance, a consumer who is looking for
a mortgage may have multiple lenders request his or her credit score. In
order to not penalize consumers who comparison shop, the score counts
multiple inquiries within a 14-day period as just one inquiry.

Page 24 GAO-05-223 Credit Reporting Literacy

    Many Consumers Were Not Familiar with Some Factors That Could Affect Credit
    Scores

Figure 4: Factors Affecting Credit Scores

Types of credit

New credit

Length of credit history

Amounts owed

Payment history

Source: Copyright (c) 2001, Fair Isaac Corporation. All rights reserved.
Used with permission.

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).47

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

47CFA and Providian, "Most Consumers Do Not Understand Credit Scores."

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.48 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."49

48CFA and Providian, "Consumers' Lack Essential Knowledge." 49Hilgert,
Hogarth, and Beverly, "Household Financial Management."

Page 26 GAO-05-223 Credit Reporting Literacy

    Few Consumers Had Obtained Their Credit Scores

Figure 5: Consumers' Knowledge of the Factors That Affect Credit Scores
Factor (type of impact)

Late credit card payment

87

(negative impact)

Skipped loan payment

87

(negative impact)

Having a credit history for a long period of time

79

(positive impact)

Frequently applying for new credit

60

(negative impact)

Using most of your available credit

52

(negative impact) 0 20 40 60 80 100 Percentage answering correctly

Source: GAO.

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.50 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.51

50Fair Isaac Corporation, myFICO Consumer Survey Results, March 2003
(unpublished); CFA and Providian, "Most Consumers Do Not Understand Credit
Scores."

51The 9.8 million disclosures represent only those scores sold by the
three CRAs. CDIA described this estimate as low and not indicative of the
total number of consumers who had reviewed their credit scores, as it did
not reflect the "entire score marketplace," which includes those scores
sold by Fair Isaac Corporation and by lenders such as banks.

Page 27 GAO-05-223 Credit Reporting Literacy

  Consumers' Knowledge of the Dispute Process Was Limited, and Few Consumers Had
  Disputed Information

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.

    Consumers Knew That They Could Dispute Information but Did Not Understand
    the Dispute Process or Their Rights

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.52 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.53 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

52Most of the 18 percent of consumers from our survey who had disputed had
seen their credit report, but it is not necessary to see a report to
dispute inaccurate information. Of the 18 percent that disputed, 94
percent of those said that they had seen their report, and 6 percent said
that they had not.

53As mentioned previously, FCRA, now amended by the FACT Act, has mandated
that the federal banking agencies, NCUA, and FTC issue regulations
identifying the circumstances under which furnishers are required to
investigate the accuracy of information in credit reports upon the request
of the consumer. Pub. L. No. 108-159 S: 312 (c).

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.54 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:

     o 72 percent did not know that CRAs investigate incorrect information
       for free;
     o 60 percent did not know that resolving a dispute with one CRA did not
       mean that the other CRAs would automatically correct the
       information;55
     o 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
     o 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

54CFA, "Consumers Lack Essential Knowledge."

55As amended by the FACT Act, FCRA requires FTC and other identified
federal agencies to promulgate regulations identifying when furnishers are
required to investigate disputed information. If the investigation reveals
an inaccuracy, the provision requires the furnisher to notify each CRA to
whom the furnisher provided the information. 15 U.S.C. S: 1681s-2(a)(8),
as amended. However, resolving inaccurate information could still be
problematic if a furnisher has gone out of business or there is an error
in personal identifying information, such as a name or address.

    The Few Consumers That Tried to Dispute or Correct Information Did So for a
    Variety of Reasons

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.

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.56

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:

     o "They had put the loan on twice";
     o "They said I hadn't paid some bill that showed up before I was born";
     o "It said I was deceased"; and

56As mentioned previously, CDIA collected these data from the three
nationwide CRAs and aggregated them before providing the information to
GAO in January 2005. CDIA told GAO that the report request figure was an
estimate of total requests by all consumers and could include multiple
requests from the same consumer.

Page 30 GAO-05-223 Credit Reporting Literacy

o  "Wrong address, repossession of a car in California where I have never
lived."

Figure 6: Reasons Consumers Disputed Information on Their Credit Reports

Incorrect balance information

Incorrect personal information

Other

Incorrect credit card information

Incorrect bill information

Incorrect late payments Incorrect payment history Someone else's
information on report

Source: GAO.

Note: Other reasons included incorrect bankruptcy information (4 percent),
incorrect information from a former spouse (3 percent), identity theft (2
percent), and another reason (4 percent).

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.57 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.58 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,59 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

57For example, a 30- or 60-day delinquency remains on a credit report even
after it has been paid.

58Prepared testimony from the Consumer Data Industry Association (CDIA)
CEO and President Stuart Pratt; in U.S. Congress, Senate, The Fair Credit
Reporting Act and Issues Presented by Reauthorization of the Expiring
Preemption Provisions, hearings before the Committee on Banking, Housing,
and Urban Affairs, 108th Cong., 1st sess., July 10, 2003. Of the 27
percent of cases in which information was deleted, 11 percent was deleted
on the furnisher's instruction and 16 percent because the 30-day period
for responding to a consumer complaint expired with no response from the
furnisher. Under section 611(a)(5) of FCRA, as amended, information that
cannot be verified must be deleted from the credit file. 15 U.S.C. S:
1681i.

59The sampling error for the 72 percent of consumers who said information
had not reappeared was +/- 7 percentage points or less at the 95 percent
confidence level.

  Certain Demographics and Credit Experiences Are Associated with Consumers'
  Understanding of Credit Reporting Issues

their reports, as allowed under FCRA. The CRAs have noted that lenders may
take such a statement into consideration when making credit decisions.

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.

    Those with Less Education and Lower Incomes Scored Lower on Our Survey

Our survey results showed that awareness of credit reporting issues
generally increased as consumers' educational level increased.60 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

60We used two methodologies-a regression analysis and cross-tabulation
analysis-that generally provided consistent conclusions. See appendix IV
for cross-tabulations results and appendix V for the regression analysis.

Page 33 GAO-05-223 Credit Reporting Literacy

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.61 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.

61The sampling error for the 55 percent figure was +/- 7 percentage
points.

Figure 7: Average Total Scores and Demographic Groups Consumers'
demographics

Less than high school High school

Some post

secondary BA or above

                                     <$25 $25 to <$50 $50 to <$75 $75 or more

18 to 24

25 to 34

35 to 44

45 to 54

55 to 64 65 and older

                                                    African American Hispanic

White

Actively employed

Student

Not employed

Male Female

Yes No

Survey score (percent of correctly answered questions) mean

Source: GAO.

Note: Brackets on each bar represent the sampling error (or confidence
interval) for that estimate at the 95 percent level of confidence.

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,

    Race/Ethnicity Was Associated with Differences in Survey Scores

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).

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.62 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.63

62Such effects are cumulative. For example, a Hispanic consumer with a
college degree, credit experience, and a high income could score around 30
percent higher than a Hispanic without a high school education, low income
(less than $25,000) and with no credit experience.

63The sampling error for the 65 percent of African Americans who had
ordered their reports themselves is +/- 7 percentage points.

Page 36 GAO-05-223 Credit Reporting Literacy

Figure 8: Credit Reporting Experience by Race/Ethnicity Percentage

80

70

62 61

60 50

41

37

40

35

30

                                       22

22

19

20

12

10 0

Obtained report Obtained score Disputed Experience

African American

Hispanic

White Source: GAO.

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).

      Table 1: Selected Survey Responses by Race/Ethnicity Race/Ethnicity (in
      percentages)

African Survey Question American Hispanic White

     Knew they had the right to obtain their report at any time 66% 48% 77%

Knew race was not on their credit report 51 50

Knew the correct definition of a credit score 59 39

Knew skipping loan payments could affect scores negatively 84 63

Knew making late credit card payments could affect scores negatively 86 69

Knew they had the right to dispute information on their credit report 89
78

Source: GAO.

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).64 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.65 Government officials and representatives of other
organizations, including La Raza, discussed the need for financial
literacy programs among the low-income Latino community.66 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

64The National Council of La Raza is a private, nonprofit organization
established to reduce poverty and discrimination and improve life
opportunities for Hispanic Americans.

65"Unbanked" means not maintaining deposit accounts with mainstream
financial service providers.

66La Raza discusses the need for financial literacy programs in the Latino
community as well as the results of some of these efforts in their 2004
report, Financial Education in Latino Communities: An Analysis of
Programs, Products, and Results/Effects, available at

www.nclr.org.

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).

      Table 2: Experience with Credit-Related Products and Race/Ethnicity

                                                               Race/Ethnicity
                                                             (in percentages)
                                                                      African
Have had the following credit-related products at  American Hispanic White 
some point in time                                                   
Credit card                                             75%   62%      92% 
Automobile loan                                          62    45       80 
Home loan/mortgage                                       42    28       73 

    Younger and Older Consumers Scored Lower on Our Survey

                                  Source: GAO.

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.67 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.68 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

67The sampling error for the 33 and 48 percent of those who obtained their
scores is +/- 7 percentage points.

68The sampling error for the 18 percent of those aged 18 to 24 who knew
that their credit history could affect employment decisions is +/- 8
percentage points. The sampling error for those in all other age groups
who answered correctly is +/- 7 percentage points or less.

Page 39 GAO-05-223 Credit Reporting Literacy

    Consumers with Credit Experience Scored Higher on Our Survey

percent, respectively).69 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).70

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).

69The sampling error for the 41 percent of those aged 18 to 24 who knew
that having a credit history for a short time affected scores negatively
is +/- 10 percentage points; for the 61 percent of those aged 25 to 34 who
answered correctly, it is +/- 7 percentage points.

70The sampling errors for the 88 to 92 percent of consumers in other age
groups who said that they should check a report from time to time are +/-
7 percentage points or less. The sampling errors for the 29 to 37 percent
for all other age groups that named the Internet are +/- 7 percentage
points or less, except for those aged 18 to 24 (+/- 10 percentage points).

Figure 9: Average Total Scores and Credit Experiences Consumers'
experience

                    0        10      20      30        40     50   55  60  70 
                  Survey score (percent of correctly answered National     
                                                   questions) mean         
Source: GAO.                                                            

Note: Brackets on each bar represent the sampling error (or confidence
interval) for that estimate (95 percent level of confidence).

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

    Being a Victim of Identity Theft and Living in a Free Report State Had
    Little Effect on Consumers' Survey Scores

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).

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.71 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).72 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

71We did not use adverse action in the regression analysis because it is a
subset of those who requested their credit reports. The regression was
designed to predict the knowledge score of the general population, not the
score of those who have obtained their credit report.

72The sampling error for the 72 percent of victims of identity theft who
obtained reports and the 36 percent of those who had disputed is +/-8
percentage points.

Page 42 GAO-05-223 Credit Reporting Literacy

recent years.73 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).74

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.75 Colorado was the exception, with
more than 10 percent requesting their reports, possibly because
someconsumers were notified of this right by mail.76 In our study, 46
percent of consumers in free report states said that they did not know
they had this right.

73FTC data indicates that complaints of identity theft doubled every year
from November 1999 through 2002. In 2003, the agency received about
215,000 identity theft complaints; in 2004, about 247,000. The total
number of complaints in FTC's database as of December 31, 2004 was
742,300.

74The sampling error for the 78 percent of those who obtained reports
because of adverse action, and who ordered reports themselves is +/- 8
percentage points. The sampling error for the 52 percent of those who
obtained reports because of adverse action and disputed is +/- 10
percentage points.

75Congressional Research Service (CRS). "A Consumer's Access to a Free
Credit Report: A Legal and Economic Analysis," Washington, D.C., December
2003.

76In Colorado, a CRA is required to notify consumers of their right to a
free credit report if a CRA has received eight credit inquiries pertaining
to the consumer or if the CRA has received a report that would add
negative information to the consumer's file. C.R.S. S: 12-14.3-104(2)(a).

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.

Given that credit reports and the credit scores derived from them impact

  Conclusions

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:

     o 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;
     o How various behaviors impact credit scores-for example, that using all
       available credit and frequently applying for new credit can lower a
       score;
     o 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.

  Recommendations for Executive Action

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.

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:

o  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

  Agency Comments and Our Evaluation

        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:
     o Improve consumers understanding of how credit reports and scores are
       used;
     o Encourage consumers to obtain their credit reports and credit scores
       and if necessary, dispute inaccurate information on their reports; and
     o Educate consumers about FTC's role in enforcing consumers' rights in
       credit reporting.

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 [email protected] or Debra R. Johnson at (202) 512-9603 or
[email protected]. Other contacts and acknowledgements are listed in
appendix IX.

Yvonne D. Jones

Director, Financial Markets and Community Investment Appendix I

                       Objectives, Scope, and Methodology

  Scope and Methodology

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.

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.

Our survey used random digit dialing methods to generate a probability

  Design of the

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

Appendix I Objectives, Scope, and Methodology

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 $25,000.1 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

1By the term "nonminorities," we mean non-African Americans and
non-Hispanics.

                 Appendix I Objectives, Scope, and Methodology

                          Developing the Questionnaire

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.

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.

                 Appendix I Objectives, Scope, and Methodology

  Administering 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.

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.

                                Survey Response

                 Appendix I Objectives, Scope, and Methodology

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.

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.2 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.3 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.

2We used the definition of the American Association for Public Opinion
Research (AAPOR) response rate #3. See
http://www.aapor.org/pdfs/standarddefs2004.pdf for the formula used.

3We used AAPOR cooperation rate #1. See
http://www.aapor.org/pdfs/standarddefs2004.pdf for the formula used.

Page 53 GAO-05-223 Credit Reporting Literacy

                 Appendix I Objectives, Scope, and Methodology

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.

                Table 3: Sample Dispositions and Response Rates

                                                             Sample Subgroups
                                  Seven States
                                      with Free African        
               Entire Sample Nationwide Reports American areas Hispanic areas 
A. Total calls       9784       5423     877           1205           2279 
attempted                                                   
B. Completed         1578        936     184            191            267 
interviews                                                  
C. Refused            893        516       6            117            254 
D. No interview,      223         80       0             32            111 
known eligiblea                                             
E. No interview,     5319       2867     590            620           1242 
known ineligibleb                                           
F. No interview,     1771       1024      97            245            405 
unknown eligibilityc                                        
Response rated        48%        50%     83%            45%            35% 
Cooperation ratee     59%        61%     97%            56%            44% 

Source: GAO.

aIncludes cases with partial responses, callbacks not completed, and those
in which language barriers prevented interviews.

bIncludes cases with disconnected and nonworking phone numbers, fax
numbers, business numbers, duplicates, and those drawn in states with
quotas already met, as well as 50 percent of the interviews not completed
because family income was outside of the range of eligibility after a
quota had been met.

cIncludes cases in which phones were not answered, only answering machines
were encountered, the line was busy, the caller was immediately told that
the number was on the "do not call list," or "privacy manager" call
blocking was in effect, as well as 50 percent of the interviews not
completed because family income was outside of the range of eligibility
after a quota had been met.

dThe response rate is defined as B / (B+ C + D + (e * F)), where e is the
eligibility rate found among cases for which eligibility could be
determined. That rate, 33.6 percent, is assumed to apply to the
no-interview cases for which eligibility could not be determined. That is,
we assume that the ratio of eligible-to-ineligible cases among those we
are unsure about is the same among those for which a determination of
eligibility could be made. The effect of this assumption is to exclude
approximately one-third of cases of unknown eligibility that could not be
contacted from the base of eligible and possibly eligible phone numbers.

                 Appendix I Objectives, Scope, and Methodology

  Survey Error and Data Quality

eThe cooperation rate is defined as B / (B+ C + D), without the inclusion
of no-interviews as a result of language barriers in D, the no-interviews
known to be eligible as defined by AAPOR. Language barriers are not
displayed separately from row D above.

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).

Appendix I Objectives, Scope, and Methodology

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.

                 Appendix I Objectives, Scope, and Methodology

                              Survey Data Analysis

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.4

4Appendix II reproduces the entire survey instrument with the frequency of
responses and the scoring associated with each knowledge question.

Page 57 GAO-05-223 Credit Reporting Literacy

                 Appendix I Objectives, Scope, and Methodology

  Interviews and Secondary Analysis

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.

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

Appendix I Objectives, Scope, and Methodology

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.

                                  Appendix II

                              Survey Questionnaire

Appendix II Survey Questionnaire

Appendix II Survey Questionnaire

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?2 (1 point)

Provided a Correct Response-45% Provided an Incorrect Response-10% Don't
know-45%

     1. 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.
     2. Don't
 1. 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)

                                                                 Yes No  know 
    a) from banks and other lenders? (1 point)             89% 4%  7%   
    b) from courthouse and other public records? (1 point) 46% 30% 24%  
    c) from credit card companies? (1 point)               90% 4%  5%   
    d) from debt collectors? (1 point)                     79% 9%  11%  

a) none-7% b) one-11% c) all-25% 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?

Don't

Yes No

know a) Social Security number? (1 point)

71%

12% 16% b) bankruptcies? (1 point)

87%

3% 10% c) credit history such as credit card balances? (1 point)

82%

9% 9% d) race? (1 point ) 15% 59%

25% e) income? (1 point) 43% 37%

20% f) a list of those who have requested and received your credit report?
(1

64%

15% 21% point) g) balances in your checking account? (1 point) 21%

58%

21%

Respondents received one point for answering a) between $8.00 and $40.00-a
possible cost range based on prices of credit reports and credit
report-related products, b) free in certain instances, c) $0 or nothing,
d) $3 and lived in MN, and e) $5 and lived in CT.

3

Appendix II Survey Questionnaire

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?3 (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%

     1. Who is permitted to see your credit report without your consent?
        Please respond by answering yes, no, or don't know.
     2. Don't
 1. Do you think your credit history can affect the following things?
       Please answer yes, no, or don't know.

                                                                 Yes No  know 
a) a potential employer? (1 point)                      19% 61%  20% 
b) someone who has a need for your credit history in                       
      connection with a product or service that you have         55% 30%  15%
      requested? (1 point)                                         
c) anyone who wants to view it? (1 point)               6%  85%  9%  
d) someone who has a court order? (1 point)             76% 9%   16% 

Don't

Yes No

know a) your ability to get a loan? (1 point)

95%

2% 3% b) the interest rate you are charged for a loan? (1 point)

81%

10% 9% c) your ability to receive Social Security benefits? (1
point) 8%

71%

21% d) insurance coverage and/or premiums? (1 point)

36%

42% 22% e) whether an employer decides to hire you? (1 point)

33%

50% 17% f) your ability to get a driver's license? (1 point) 4%

86%

10% g) whether a landlord decides to rent to you? (1 point)

72%

15% 12%

19. Have you ever viewed your credit report?

Yes-58% No-41% o GO TO QUESTION #26 Don't know-1% o Go to question #26

Respondents received one point if they said 7 or 10 years.

4

Appendix II Survey Questionnaire

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?

I ordered it myself-53% o Go to question #23 It was given to me by someone
else who ordered it-47%

22. Who?

VERBATIM RESPONSES NOT SHOWN. Responses collapsed into the following
categories: x Mortgage company-29% x Bank/financial institution-25% x
Lender (in general)-16% x Car dealership-12% x Credit card company-4% x
Don't remember-4% x Family member-2% x Employer-1% x Other-7%

23. Why was your last credit report ordered? Was it...
                                                           Yes No  Don't know 
a) due to an adverse action, such as denial of credit,  14% 83%         2% 
      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          52% 48%         0% 
      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%

5

Appendix II Survey Questionnaire

Appendix II Survey Questionnaire

Appendix II Survey Questionnaire

35. What type of information did you dispute?

VERBATIM RESPONSES NOT SHOWN. Responses collapsed into the following
categories: x Things that were not mine-17% x Incorrect late
payments-14% x Incorrect payment history-14% x Incorrect credit card
information-13% x Incorrect bill information-13% x Incorrect personal
information-10% x Incorrect balance information-7% x Incorrect
bankruptcy information-4% x Incorrect information from a former spouse-3%
x Identity theft-2% x Other-4%

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?

0/00.

    Yes-69%

0/00.

No-23% o GO TO QUESTION #40

0/00.

Don't know-7% o GO TO QUESTION #40

39. After the inaccurate information was removed from your credit report,
was this information later reinserted?

0/00.

Yes-13%

0/00.

No-72%

0/00.

Don't know-15%

                                       8

Appendix II Survey Questionnaire

Appendix II Survey Questionnaire

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.

Positive Has no Negative Don't way effect way know a) having a credit
history for a short time? (1 point) 15% 12%

49%

24% b) having a credit history for a long time? (1 point)

79%

3% 4% 14% c) having a low checking account balance? (1 point) 4%

43%

29% 24% d) frequently applying for new credit? (1 point) 11% 10%

60%

19% e) making late payments on your credit card? (1 point) 5% 2%

87%

7% f) using most of the credit available to you? (1 point) 15% 12%

52%

21% g) skipping a loan payment that is due? (1 point) 4% 2%

87%

8% h) requesting a copy of your own credit report? (1 point) 21%

50%

10% 19%

46. What do you think a possible credit score, based on someone's credit
history, is? Please provide a number ...4 (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%

FACT Act

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.

Don't

                                                         Yes No  know Refused 
     a) all consumers will be entitled to request one    47% 4%  49%    1%    
        free credit                                                   
        report a year? (1 point)                                
     b) all lenders must report to all three credit      38% 8%  54%    0%    
        reporting                                                     
        agencies? (1 point)                                     
     c) the use of credit scores by lenders will be      9%  33% 57%    1%    
        prohibited.                                                   
        (1 point)                                               
4                                                                  

     Respondents who gave an answer between 300 and 900 received one point.

                                       10

Appendix II Survey Questionnaire

* Demographics

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:

x White-69% x Black-12% x Hispanic-14% x Other-5%

     1. Are you of Spanish, Hispanic, or Latino origin?
     2. No, not Spanish/Hispanic l GO TO QUESTION #51 Yes l CONTINUE TO #50
        THEN SKIP TO QUESTION #52 Don't know l GO TO QUESTION #51 Refused l
        GO TO QUESTION #51
 1. 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? [MARK ALL THATAPPLY]

White Black/African American American Indian Alaska Native Asian Native
Hawaiian/Pacific Islander Other Please Specify: __________________________
Don't know Refused

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? [MARK ALL THAT APPLY]

White Black/African American American Indian Alaska Native Asian Native
Hawaiian/Pacific Islander Other Please Specify: __________________________
Don't Know Refused

11

Appendix II Survey Questionnaire

52. What year were you born?

1 9 ______

x 24 and under (at least 18 years old)-13% x 25 to 34-19% x 35 to
44-22% x 45 to 54-18% x 55 to 64-12% x 65 and older-17%

53. Are you Male or Female?

Male-48% Female 52% Refused-0%

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% Some coc/tech/business
Voc/tech/business certificate or diploma Some college

5

Associate's degree *Some postsecondary education-28% Bachelor's degree
(BA; BS) Some graduate/professional school Graduate/professional degree
(MA; MS; PhD; EdD: Medicine/MD; Dentistry/DDS; Law/JD; Etc.)

*BA or more-31%

55. How would you describe your current employment status? Would you say
you are ...

Employed full time-51% Retired-17% Employed part time-9% Homemaker-7%
Unemployed-7% Full-time student-4% Other-5%

The figure for "some postsecondary education" includes those with some
college; a vocational, technical, or business certificate or diploma; or
some vocational, technical, or business education.

                                       12

Appendix II Survey Questionnaire

 1. Different people have different types of financial accounts,
       investments and loans. We don't
 2. 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.

want to know the amounts, but have you ever had any of the         
following?                                                         
                                                                DON'T 
                                                   Yes     No         REFUSED 
                                                                KNOW  
     a)   a checking account?                      91%     8%    0%     1%    
       b) a credit card?                           85%    14%    0%     1%    
     c)   an automobile loan?                      72%    27%    0%     1%    
       d) a mortgage or home loan?                 61%    37%    0%     1%    
     e)   a savings account or certificate of      84%    14%    1%     1%    
          deposit?                                                    
     f)   a mutual fund?                           43%    54%    2%     1%    
       g) stocks in individual companies?          43%    55%    1%     1%    
       h) government bonds?                        32%    66%    1%     1%    

Less than $25,000-24% $25,000-$49,999-25% $50,000-$74,999-19% $75,000 or
more-22% Refused-10%

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)

Less than $25,000?-15% Greater than $25,000?-33% Refused?-52%

Combined Responses for Question 57 and Question 58
         Response        Percentage of Respondents    
Less than $25,000                 26%              
$25,000-$49,999                   25%              
$50,000-$74,999                   19%              
$75,000 or more                   22%              
Refused                            9%              

                                       13

Appendix III

Review of Selected Findings from Other Studies

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.

            Table 4: Review of Selected Findings from Other Studies

                          Results Study/Source of Data

Credit Reports

            The number of consumers who review their credit reports

There were 57.4 million credit file disclosures in 2003. CDIA estimates
that there are a total of approximately 200 million credit files
maintained by each of the three nationwide CRAs.

Consumer Data Industry Association (CDIA). Data was collected from the
three nationwide CRAs-Equifax, Experian, and TransUnion-and provided to
GAO in January 2005. The data on credit files issued includes all
direct-to-consumer disclosures-meaning offers to consumers (for a fee) and
online products, which commonly include file disclosures, credit scores,
credit score and analyses, file monitoring, fraud alert systems and more.
This data also includes all consumer relations disclosures-meaning
disclosures made to consumers who contact a CRA to receive a file
disclosure because of an adverse action notice, concern about fraud, being
unemployed and seeking employment, or being on public assistance. These
data are an estimate of total requests by all consumers and could include
multiple requests from the same consumer.

          Appendix III Review of Selected Findings from Other Studies

                         (Continued From Previous Page)

Results                           Study/Source of Data           
Credit Reports                                                   
o  TransUnion estimates that in   Congressional Research Service (CRS). "A
the 44 states that do not         Consumer's Access to a Free    
have a law requiring CRAs to      Credit Report: A Legal and Economic
provide an annual free            Analysis." Washington, D.C.:   
credit report upon request, the   December 2003.                 
consumer request rate                                            
ranges between 1.5% and 2%.                                      
o  In GA, MA, NJ, MD, Vermont                                    
(where credit reports are                                        
made available for free) the                                     
request rate ranges                                              
between 3.5% and 4%.                                             
o  In Colorado (where consumers                                  
review one free report                                           
per year and, in addition, are                                   
notified via mail of this                                        
right under two specific                                         
circumstances), the request                                      
rate is between 10% and 11%.                                     

An estimated 16 million are issued to consumers each CDIA. Testimonies
from CEO and President Stuart Pratt: (1) before the U.S.

year, 95% of them for free. Congress, Senate Committee on Banking,
Housing, and Urban Affairs, The Fair Credit Reporting Act and Issues
Presented by Reauthorization of the Expiring Preemption Provisions,
Hearings, 108th Congress,1st sess., July 10, 2003; and (2) Fair and
Accurate Credit Transactions Act of 2003, hearing

H.R. 2622, 108th Congress,1st sess., July 9, 2003.

34% of respondents 45 years and older said they had American Association
of Retired People (AARP). "Consumer Experience reviewed a copy of their
credit report. Survey: Insights on Consumer Credit Behavior, Fraud and
Financial Planning." Washington, D.C., October 2003.

43% of respondents said that they had reviewed their Consumer Federation
of America (CFA). "Consumers Lack Essential

credit report in the last 2 years. Knowledge and Strongly Support New
Protections on Credit Reporting and Scores," Washington, D.C. July 2003.
Information available at http://www.consumerfed.org .

58% of respondents said that they had reviewed their Hilgert, Marianne A.,
Jeanne M. Hogarth, and Sondra G. Beverly.

credit report. "Household Financial Management: The Connection between
Knowledge and Behavior." Federal Reserve Bulletin, July 2003.

63% of respondents said that they   Fair Isaac Corporation. "myFICO        
had reviewed their credit report.   Consumer Survey Results," March 2003.  
                                       Unpublished.                           
Almost 20% of respondents had never Household International. "Household    
seen their credit                   Your Credit Counts Challenge,"         
report.                             December 2002. Unpublished.            
Why consumers obtained their credit 
reports                             

Of the 16 million reports requested by consumers: CDIA. Prepared testimony
from CEO and President Stuart Pratt, The Fair

     o 84% were disclosed due to adverse action; Credit Reporting Act and
       Issues Presented by Reauthorization of the
     o 11.5% for fraud;a Expiring Preemption Provisions.
     o 5.25% for curiosity;
     o 0.4% due to being unemployed or seeking employment; and
          * 0.1% due to being on public assistance.
          * Reasons why respondents looked at their credit report: Louis
            Harris and Associates. "Consumer Interest in Free Credit
            Reports,"
     o 39% curiosity; 2003. Unpublished. Selected findings from this study
       were provided to GAO
     o 31% ready to apply for loan/credit; by CDIA.
     o 10% denied credit, insurance, employment;
     o 6% concerned you were a victim of identity theft;
     o 12% some other reason; and
     o 1% did not know.

Appendix III Review of Selected Findings from Other Studies

                         (Continued From Previous Page)

                          Results Study/Source of Data

Credit Reports

           How much consumers know about the data collection process

     o 94% of respondents 45 years and older knew that a AARP. "Consumer
       Experience Survey." missed credit card payment could be reported on
       their credit report.
     o 88% of respondents 45 years and older were aware that a lender could
       report a non-payment of a mortgage payment on the homeowner's credit
       report.

81% of respondents answered "true" to the following Hilgert, Hogarth, and
Beverly. "Household Financial Management." statement: Your credit report
includes employment data, your payment history, any inquiries made by
creditors, and any public record information.

            What consumers know about obtaining their credit reports

     o 97% answered "true"--consumers have the right to see their credit
       report.
     o 46% answered "true"--consumers in almost every state must pay a fee to
       obtain their credit report.
     o 81% answered "true"--consumers who fail to qualify for a loan have the
       right to a free credit report.
     o 3% were able to name all three CRAs, 7% named two correctly, 15% named
       one correctly, and 75% named none of the CRAs correctly.

                   CFA. "Consumers Lack Essential Knowledge."

    What consumers know about the possible impacts of their credit histories

88% of respondents 45 years and older answered "true" AARP. "Consumer
Experience Survey." to the following statement: "An individual's bill
paying history on their credit record affects their ability to get a home
loan."

Who determines your interest rate (unaided)? Fair Isaac Corporation.
"myFICO Consumer Survey Results."

     o 52%--my lender;
     o 22%--I do;
     o 20%--federal government (6%--Alan Greenspan); and
     o 5%--my credit rating/credit history.

  Other

48% of respondents said their knowledge of credit CFA. "Consumers Lack
Essential Knowledge." reports was excellent/good and 50% said it was
fair/poor.

  Credit Scores

 What consumers know about the factors that can impact credit scores and their
                                      use

9.8 million credit scores were provided to consumers by CDIA collected
data from the three nationwide CRAs-Equifax, Experian,

the CRAs during calendar year 2003. and TransUnion. This data does not
include the entire score disclosure market place, which, in addition to
scores sold by the three CRAs, includes scores sold by Fair Isaacs
Corporation and by lenders, such as banks.

          Appendix III Review of Selected Findings from Other Studies

                         (Continued From Previous Page)

                          Results Study/Source of Data

  Credit Scores

     o 34% of respondents answered "true"-a credit score CFA and
       Providian.(R) "Most Consumers Do Not Understand Credit Scores mainly
       indicates the risk of repaying a loan. According to a New
       Comprehensive Survey," Washington, D.C., July 2004.
     o These percentages of respondents answered "true" to Information
       available at http://www.consumerfed.org. the following statements:
       *76%--credit scores change whenever a credit report changes; *52%--a
       married couple has a combined credit score; *43%--those with a credit
       score have only one score; and *16%--only those at least 21 years of
       age have a credit

score.

If your credit score is below a certain level, you will CFA and Providian.
"Most Consumers Do Not Understand Credit Scores." probably either be
denied credit or have to pay a higher, subprime rate. Would you say this
level is in the ...

     o 33% of respondents said the low 500s;
     o 13%--high 500s;
     o 12%--low 600s;
     o 5%--high 600s;
     o 7%--low 700s; and
          * 30%--did not know/none of the above.
          * If your credit score is above a certain level, creditors will CFA
            and Providian. "Most Consumers Do Not Understand Credit Scores."
            usually charge you the lowest rates. Would you say this level is
            in the...
     o 11% of respondents said the high 500s;
     o 8%--low 600s;
     o 10%--high 600s;
     o 13%--low 700s;
     o 29%--high 700s; and
          * 29%--did not know/none of these.
          * Percentage of respondents who indicated that the CFA and
            Providian. "Most Consumers Do Not Understand Credit Scores."
            following factors can influence one's credit score:
     o 87%--whether loan payments have been paid on time;
     o 79%--amount of debt related to income;
     o 66%--whether one has maxed out the credit line on a credit card;
     o 65%--income;
     o 38%--age;
     o 37%--marital status;
     o 25%--education; and
     o 3%--did not know/none of these.

          Appendix III Review of Selected Findings from Other Studies

                         (Continued From Previous Page)

                          Results Study/Source of Data

  Credit Scores

Thinking about when a young adult gets and begins CFA and Providian. "Most
Consumers Do Not Understand Credit Scores." using their first major credit
card, how much lower or higher would their credit score go if they did
each of the following? Would you say much higher (MH), somewhat higher
(SH), little or no change (NC), somewhat lower (SL), or much lower (ML)
[or don't know (DK)]? The following data are percentages of respondents.

MH SH NC SL ML DK

Paid off a large balance on the card 25% 34% 13% 10% 10% 7%

Maxed out the card by using the entire credit line 17 11 15 23 23 10

Paid $50 more than the minimum balance for a year 17 37 21 12 6 8

Made a monthly payment more than 30 days late 16 12 6 33 27 7

Paid the minimum balance on the card for a year 8 22 42 15 6 7

Which of the following service providers often use credit CFA and
Providian. "Most Consumers Do Not Understand Credit Scores." scores to
decide whether you can buy a service or at what price? The following
percentages said "yes":

     o 81%--mortgage lender;
     o 77%--credit card lender;
     o 50%--cell phone company;
     o 48%--landlord;
     o 47%--home insurer;
     o 30%--electric utility; and
     o 8%--did not know/none of these.

90.1% of respondents 25 to 49 years old (and of certain Providian. "Credit
Cards and Mainstream America," February 2004. education and income levels)
selected the response: "A Unpublished. credit score is a rating of my
credit history. It is calculated by credit bureaus and most often reviewed
by lenders in considering whether to grant credit."

Appendix III Review of Selected Findings from Other Studies

                         (Continued From Previous Page)

                          Results Study/Source of Data

  Credit Scores

The following percentages of respondents said that Providian. "Credit
Cards and Mainstream America." second to filing for bankruptcy, the
following element had the greatest influence on their credit score:

     o 5.4%--the number of bankcard charge accounts that you have;
     o 20.8%--the amount of available credit you have compared with the
       outstanding balances on your credit cards;
     o 5.9%--paying credit card bills online;
     o 66%--late or missed payments reported on your credit accounts; and
          * 1.9%--the number of times you use an automatic teller machine
            (ATM) in a month.
          * 60% of respondents answered "false" to the following Hilgert,
            Hogarth, and Beverly. "Household Financial Management."
            statement: Your credit rating is not affected by how much you
            charge on your credit cards.
     o 67% of respondents answered "false"-your credit CFA. "Consumers Lack
       Essential Knowledge." score mainly measures your knowledge of consumer
       credit. 27% of respondents answered "true."
     o 38% answered "true"-your credit score may be lowered if you apply for
       a credit card and 55% said "false."
     o 45% answered "true"-your credit score may be lowered if you use all of
       the credit available on your credit card.
     o Regarding who uses credit scores to decide whether

they can use a service and/or at what cost: *92% answered that mortgage
lenders may; *87%--credit card companies; *62%--cell phone companies;
*59%--landlord; *59%--home insurers; and *40%--electric utility companies.

Appendix III Review of Selected Findings from Other Studies

                  Page 79 GAO-05-223 Credit Reporting Literacy

(Continued From Previous Page)               
Results                                      Study/Source of Data          
Credit Scores                                
How many consumers have obtained credit      
scores                                       
Have you ever obtained your credit score?  o CFA and Providian. "Most      
    53%--yes; and  o  45%--no;  o  2%--did not  Consumers Do Not Understand   
know.                                        Credit Scores."               
Of those who had obtained their score, they  
obtained it:  o  46% within the past year;   
o  22%--1 to 2 years ago;  o  19%--2 to 5    
years ago;  o  10%--more than 5 years ago;   
and  o  2%--did not know.                    
Of those who had obtained their score, they  
said they had obtained it from:  o  35%      
mortgage lender or broker;  o  28% credit    
bureau or reporting agency;  o  12% credit   
issuer or other consumer lender;  o  19%     
some other company or source; and  o  5% did 
not know/none of these.                      
31.9% of respondents said that they knew     Providian. "Credit Cards and  
what their current personal credit score     Mainstream America."          
was.                                         
24% of respondents 45 years and older had    AARP. "Consumer Experience    
obtained a copy of their credit score.       Survey."                      
25% of respondents said that they knew their CFA. "Consumers Lack          
credit score.                                Essential Knowledge."         
Have you ever seen or reviewed your own      Fair Isaac Corporation.       
credit score?  o  30.7% yes; and  o  69.3%   "myFICO Consumer Survey       
no.                                          Results."                     
Those who had seen their score were asked    
for what purpose did they see their credit   
score:  o  65.9% said due to a loan/major    
purchase; and  o  27.5% said to keep         
informed/personal/curiosity.                 
Other                                        
o  10% of respondents could answer the       TrueCredit, "TrueCredit       
question, "What is your credit score?" with  Survey Reveals Startling      
a correct three-digit response ranging       Illiteracy: Nearly 90 Percent 
between 300 and 850.  o  One in eight knew   of Americans Do Not Know      
what constituted a "good" credit score       Their Credit Scores,"         
(650-850).                                   September 15, 2004.           
34% of respondents over the age of 45 said   AARP. "Consumer Experience    
their knowledge of credit scores was         Survey."                      
excellent/good and 61% said it was           
fair/poor.                                   
85% of respondents knew what a credit score  Household International.      
was.                                         "Household Your Credit Counts 
                                                Challenge."                   
78% of consumers agree that it was important Household International.      
to know their credit score, yet only 26%     "Household Your Credit Counts 
actually did.                                Challenge."                   

          Appendix III Review of Selected Findings from Other Studies

                         (Continued From Previous Page)

                          Results Study/Source of Data

  Credit Scores

65% of respondents believed they should check their Household
International. "Household Your Credit Counts Challenge." credit score at
least once per year, but only 53% of these people had done so within the
last year.

                               Dispute Resolution

         What consumers understand about the dispute resolution process

     o 32% of respondents answered "false" to the following CFA. "Consumers
       Lack Essential Knowledge." statement: "Consumers who believe their
       credit reports or scores are inaccurate must contact their lenders."
     o 64% of respondents answered "true."

                            Disputes and inaccuracy

Of the 57.4 million credit files disclosed to consumers in CDIA collected
data from the three nationwide CRAs and provided it to GAO

2003, 12.5 million were reinvestigated/disputed. in January 2005. As noted
on page 1 of this appendix, the data on credit files issued from 2003
includes all direct-to-consumer disclosures and all consumer relations
disclosures.

     o 14% of revolving credit accounts were reported without information
       about credit limits;
     o Individuals with scores below 600 tended to have the highest frequency
       of data problems and were the most likely to experience a score
       increase of 10 points or more in response to corrections of data
       problems; and
     o Individuals with scores above 660 had the lowest incidence of data
       problems.

Avery, Robert B., Paul S. Calem, and Glenn B. Canner. "Credit Report
Accuracy and Access to Credit." Federal Reserve Bulletin, Summer 2004. The
Federal Reserve analyzed the credit records (drawn as of June 30, 2003) of
a nationally representative sample of individuals and examined the
possible effects of data limitations on consumers by estimating the
changes in consumers' credit history scores that would result from
correcting data problems in their credit records.

     o 25% of the credit reports had serious errors that could result in the
       denial of credit;
     o 54% had personal demographic information that was incorrect;
     o 22% listed the same mortgage or loan twice;
     o almost 8% were missing major credit, loan, mortgage, or other consumer
       accounts that demonstrate the creditworthiness of the consumer;
     o 30% contained credit accounts that had been closed by the consumer but
       remained listed as open; and
     o altogether 79% contained either serious errors or other mistakes.

U.S. Public Interest Research Group (PIRG)-also known as the National
Association of State PIRGs. "Mistakes Do Happen: A Look at Errors in
Consumer Credit Reports," June 2004. Available at http://usp
irg.org/uspirg.asp?id2=13649&id3=USPIRG& . PIRG asked adults in 30 states
to order their credit reports and complete a survey on the reports'
accuracy. All of those surveyed were PIRG citizen members, in addition to
PIRG staff, coalition partners, and friends and family. PIRG collected 197
surveys from 154 adults in 30 states.

     o Over 8 million consumers (of the 16 million who CDIA. Prepared
       testimony from CEO and President Stuart Pratt, The Fair received
       credit reports) did not call a CRA back after Credit Reporting Act and
       Issues Presented by Reauthorization of the receiving a copy of their
       credit report. Expiring Preemption Provisions.
     o 50% of callbacks each month to CRAs are of an educational nature--that
       is consumers simply have questions about their reports.

          Appendix III Review of Selected Findings from Other Studies

                         (Continued From Previous Page)

Results                             Study/Source of Data                   
Dispute Resolution                  
o  46% of credit file data was      CDIA. Prepared testimony from CEO and  
verified as the information         President Stuart Pratt, The Fair       
reported;                           Credit Reporting Act and Issues        
                                       Presented by Reauthorization of the    
o  27% of data was modified per     Expiring Preemption Provisions. These  
data furnisher's                    results are based on an                
instruction but this could be due   industry-wide data set of disclosures  
to an update of                     to consumers and dispute responses to  
information rather than a dispute;  disputes submitted. CDIA collected the 
                                       data from their nationwide consumer    
o  10.5% of data was deleted per    reporting members.                     
data furnisher's                    
direction; and                      
o  16% of data was deleted due to   
expiration of the                   
30-day period and no response       
received from the data              
furnisher (it cannot be determined  
whether the data                    
was accurate or not).               

     o Average number of files issued per year (for the data set)-180,000;
     o Average number of contacts/disputes relative to this population-9,000;
       and
     o Based on these numbers, approximately 5% of consumers requesting their
       files disputed.

CDIA. Prepared testimony from CEO and President Stuart Pratt, The Fair
Credit Reporting Act and Issues Presented by Reauthorization of the
Expiring Preemption Provisions. Based on a data set collected by CDIA on
the number of consumers who reviewed their credit files after receiving
notices about (1) a certain level of inquiry activity or (2) additional
adverse information being reported.

Only four tenths of one percent of all reports sold in this CDIA. Prepared
testimony from CEO and President Stuart Pratt, The Fair

country ended up with the consumer contacting a CRA. Credit Reporting Act
and Issues Presented by Reauthorization of the Expiring Preemption
Provisions. These results were based on data collected by CDIA on 2
billion credit reports sold annually.

     o 61 (32%)--number of the 189 reports that were accurate but needed to
       be updated due to a new account or other new additional information;
       and
     o 2 (1%)--number of reports with an identified inaccuracy based on
       direct contact with the original provider of the information in the
       report.

CDIA. Prepared testimony from CEO and President Stuart Pratt, The Fair
Credit Reporting Act and Issues Presented by Reauthorization of the
Expiring Preemption Provisions. These results were based on data collected
by CDIA based on a sample of 189 three-file merged reports that were
reviewed by a mortgage reporting service and some were updated via direct
contact with data furnishers.

     o About 70% of individuals in the sample had a missing credit limit on
       one or more of their revolving accounts.
     o About 40% of individuals with public records had more than one such
       record, and about 40% of those with accounts reported by collection
       agencies had more than one collection item. For many of these
       individuals, the multiple record items appeared to be pertaining to
       the same episode.

Avery, Robert B., Paul S. Calem, Glenn B. Canner, and Raphael W. Bostic.
"An Overview of Consumer Data and Credit Reporting." Federal Reserve
Bulletin, February 2003. The Federal Reserve analyzed 248,000 credit
records (excluding any identifying information) that were randomly
selected from a nationally representative sample of credit records (as of
June 1999) provided by one of the nationwide CRAs.

     o 78% of credit files omitted a revolving account in good standing;
     o 33% were missing a mortgage account that had never been late;
     o 67% omitted other types of installment accounts that had never been
       late;
     o 82% of credit files had inconsistencies regarding the balance of
       revolving accounts or collections; and
     o 96% had inconsistencies regarding an account's credit limit.

CFA and National Credit Reporting Association, Credit Score Accuracy and
Implications for Consumers, December 2002. CFA and NCRA initially reviewed
1,704 credit files representing consumers from 22 states and then
reexamined a sample of 51 three-agency merged files. These results are
based on the reexamination.

Including all types of ID theft, a total of 4.6 percent of Federal Trade
Commission (FTC). "Federal Trade Commission-Identity respondents indicated
that they had discovered they Theft Survey Report," September 2003.
Available at www.ftc.gov. were victims of identity theft in the past year.

          Appendix III Review of Selected Findings from Other Studies

                         (Continued From Previous Page)

                          Results Study/Source of Data

Identity Theft

     o Are you aware of ID theft? Fair Isaac Corporation. "myFICO Consumer
       Survey Results." *83.6%--yes; and *16.4% no.
     o Have you or someone you know been the victim of ID theft? *28.2%--yes.
     o How concerned are you about being the victim of ID theft?
       *20.4%--extremely concerned; *29.1%--very concerned; *34.4%--somewhat;
       *10.7%--not very; and *5.1%--not at all.

Legislation

Later this year, a new federal law giving consumers CFA and Providian.
"Most Consumers Do Not Understand Credit Scores." more credit score rights
will go into effect. Do you think this new law gives consumers the right
to obtain their credit score... (the following percentages of respondents
said "yes" to the statements below):

     o 74%--for free if they have been denied a mortgage loan;
     o 72%--for free once a year;
     o 71%--for free if they have been denied a credit card; and
     o 69%--at any time for a small fee.

Source: GAO.

aIn the body of our report, we rounded this and other percentages to the
nearest whole number.

Appendix IV

Certain Demographics and Credit Experiences Are Associated with Consumers'
Understanding of Credit Reporting Issues

  Those with Less Education and Lower Incomes Scored Lower on Our Survey

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.1 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.2

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.

1The regression analysis shows the independent effects of certain factors
on an individual's total knowledge score. It can also show the
simultaneous and cumulative effects of certain factors if we add the
effects of each statistically significant factor. The cross-tabulation
analysis shows the differences in average total knowledge scores and
specific survey question responses for different populations. The
statistical significance of a result is the probability that the observed
relationship between variables did not occur by pure chance. Please see
appendix V for additional discussion of the regression analysis.

2Prior to the Fair and Accurate Credit Transactions Act (FACT Act), seven
states- Colorado, Georgia, Maine, Maryland, Massachusetts, New Jersey, and
Vermont-already allowed residents to request at least one free copy of
their credit report annually. See 69 Fed. Reg. 35468, 35488 n. 66 (June
24, 2004). In our report, we refer to these states as "free report
states."

Appendix IV Certain Demographics and Credit Experiences Are Associated
with Consumers' Understanding of Credit Reporting Issues

    Figure 10: Average Total Scores and Demographic Groups

      Consumers' demographics

Less than high school High school

      Some post

secondary BA or above

                                     <$25 $25 to <$50 $50 to <$75 $75 or more

      18 to 24

25 to 34

35 to 44

45 to 54

55 to 64 65 and older

                                                    African American Hispanic

White

Actively employed

      Student

Not employed

Male Female

Yes No

Survey score (percent of correctly answered questions) mean

Source: GAO.

Note: Brackets on each bar represent the sampling error (or confidence
interval) for that estimate at the 95 percent level of confidence.

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

Appendix IV Certain Demographics and Credit Experiences Are Associated
with Consumers' Understanding of Credit Reporting Issues

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).

Figure 11: Credit Reporting Experience by Educational Level Percentage

Less thanhool

                            Some post-helor'sdegree

hool

                                       y

                                    secondar

                                   or higher

High sc

high sc

                                      Bac

Education level

Disputed

Obtained score

Obtained report Source: GAO.

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).

  Appendix IV Certain Demographics and Credit Experiences Are Associated with
              Consumers' Understanding of Credit Reporting Issues

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.

            Table 5: Selected Survey Responses and Educational Level

Education (in percentages)

Less than Bachelor's high High Some post- degree or Survey Question school
                                                       school secondary above

              Knew the correct definition of a CRA 44% 74% 89% 97%

     Knew they had the right to obtain their report at any time 37 63 76 85

              Knew race was not on their credit report 37 54 65 66

  Knew credit history could impact insurance coverage and premiums 22 34 38 41

           Knew the correct definition of a credit score 31 57 79 88

     Knew skipping loan payments could affect scores negatively 55 84 93 95

Knew that making late credit card payments could affect scores negatively 56 83
                                     93 96

Knew they had the right to dispute information on their report 72 87 93 96

Source: GAO.

Note: The sampling errors for those with less than high school education
are +/- 7 percentage points or less.

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.

Appendix IV Certain Demographics and Credit Experiences Are Associated
with Consumers' Understanding of Credit Reporting Issues

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.

Figure 12: Credit Reporting Experience and Household Income Level
Percentage 80

70 60 50 40 30 20 10

0 <$25K $25K $50 $75K+ to to $49K $74K Income level

Disputed Obtained score Obtained report Source: GAO. Note: The sampling
errors for those with incomes of $50,000 - $74,999 and $75,000 or more are
+/- 7 percentage points or less.

Consumers with relatively low household incomes- in particular, those in
households making less than $25,000-generally were less aware of issues

  Appendix IV Certain Demographics and Credit Experiences Are Associated with
              Consumers' Understanding of Credit Reporting 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).3 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.

    Table 6: Selected Survey Responses of Different Household Income Levels

                            Income (in percentages)

     Survey Question Less than $25K $25K - $49K $50K - $74K $75K and above

    Knew credit history could affect interest rates on loans 73% 80% 88% 89%

Knew credit history could affect employment decisions 27 33 34

Knew the correct definition of a credit score 49 71 81

Knew having credit history for a short time could affect scores negatively

36 47 58

Knew frequently applying for credit could affect scores negatively 44 60
68

Knew using most of your available credit could affect scores negatively 40
52 59 62

Knew requesting a copy of your own report had no effect on credit scores
35 50 53 64

Source: GAO.

Note: The sampling errors for those with incomes of $50,000 - $74,999 and
$75,000 or more are +/- 7 percentage points or less.

3The sampling errors for the 32-36 percent of other household income
groups are +/- 7 percentage points or less.

Page 88 GAO-05-223 Credit Reporting Literacy

  Appendix IV Certain Demographics and Credit Experiences Are Associated with
              Consumers' Understanding of Credit Reporting Issues

  Race/Ethnicity Was Associated with Differences in Survey Scores

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).4

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.5 In addition, more African Americans (15 percent) than whites (6
percent) said that they had ordered their reports because of adverse
action.

4Such effects are cumulative. For example, a Hispanic consumer with a
college degree, credit experience, and a high income could score around 30
percentage points higher than a low-income ($25,000 or less) Hispanic
without a high school education or credit experience.

5 The sampling error for the 65 percent of African Americans that ordered
their reports themselves is +/- 7 percentage points.

Page 89 GAO-05-223 Credit Reporting Literacy Appendix IV Certain
Demographics and Credit Experiences Are Associated with Consumers'
Understanding of Credit Reporting Issues

Figure 13: Credit Reporting Experience by Race/Ethnicity

Percentage

80

70

62 61

60 50

41

37

40

35

30

                                       22

22

19

20

12

10 0

Obtained report Obtained score Disputed Experience

African American

Hispanic

White Source: GAO.

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).

  Appendix IV Certain Demographics and Credit Experiences Are Associated with
              Consumers' Understanding of Credit Reporting Issues

              Table 7: Selected Survey Responses by Race/Ethnicity

Race/Ethnicity (in percentages)

African Survey Question American Hispanic White

     Knew they had the right to obtain their report at any time 66% 48% 77%

Knew race was not on their credit report 51 50

Knew the correct definition of a credit score 59 39

Knew skipping loan payments could affect scores negatively 84 63

Knew making late credit card payments could affect scores negatively 86 69

Knew they had the right to dispute information on their credit report 89
78

Source: GAO.

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.6 Government officials and
representatives of other organizations, including La Raza, discussed the
need for financial literacy programs among the low-income Latino
community.7 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).

6"Unbanked" populations do not maintain deposit accounts with mainstream
financial service providers.

7La Raza discusses financial literacy programs in the Latino community as
well as the results of some of these efforts in its 2004 report, Financial
Education in Latino Communities: An Analysis of Programs, Products, and
Results/Effects , available at www.nclr.org.

Page 91 GAO-05-223 Credit Reporting Literacy

  Appendix IV Certain Demographics and Credit Experiences Are Associated with
              Consumers' Understanding of Credit Reporting Issues

      Table 8: Experience with Credit-Related Products and Race/Ethnicity

                                              Race/Ethnicity (in percentages)
                                                                      African
Have had the following credit-related products at  American Hispanic White 
some point in time                                                   
Credit card                                             75%   62%      92% 
Automobile loan                                          62    45       80 
Home loan/mortgage                                       42    28       73 

  Younger and Older Consumers Scored Lower on Our Survey

                                  Source: GAO.

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.8 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.9 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.10 The differences were similar for dispute, with
7 percent of the youngest group and 10 percent of the oldest disputing

8The small independent impact found for age with the regression analysis
and the larger differences among age groups found with the
cross-tabulation analysis suggest that the cross-tabulation analysis
captured not only age but also factors such as education and experience
with the credit system. See appendix V.

9The sampling error for the 24 percent of the youngest consumers (aged 18
to 24) who had seen their reports is +/- 9 percentage points. The sampling
errors for the oldest group (65 or over) and all other age groups are +/-
7 percentage points or less.

10The sampling errors for the 33 and 48 percent of those who had obtained
their scores are +/- 7 percentage points.

Appendix IV Certain Demographics and Credit Experiences Are Associated
with Consumers' Understanding of Credit Reporting Issues

information in their credit reports; in comparison, 16 to 27 percent in
all other age groups reported having disputed information.11

Figure 14: Credit Reporting Experience by Age Group Percentage

80 70 60 50 40 30 20 10

0 18 25 35 45 5565+ to 24 to 34 to 44 to 54 to 64 Age

Disputed Obtained score Obtained report Source: GAO. Note: The sampling
errors are +/- 7 percentage points or less, except for the 24 percent of
those aged 18 to 24 who had seen their reports (+/- 9 percentage points).

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

11The sampling error for the 27 percent of those in the 55 to 64 age group
who said they had disputed is +/- 7 percentage points.

Page 93 GAO-05-223 Credit Reporting Literacy Appendix IV Certain
Demographics and Credit Experiences Are Associated with Consumers'
Understanding of Credit Reporting Issues

engaging in their first job search-while 29 to 46 percent of those in all
other age groups knew this fact.12 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).13 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).14 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.15
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.16

12 The sampling error for the 18 percent of those aged 18 to 24 who knew
that their credit history could affect employment decisions is +/- 8
percentage points. The sampling errors for all other age groups that knew
this fact are +/- 7 percentage points or less.

13 The sampling error for the 55 percent of those aged 18 to 24 who could
identify the correct definition of a credit score is +/- 10 percentage
points.

14 The sampling error for the 41 percent of those aged 18 to 24 who knew
that having had a credit history for a short time affected scores
negatively is +/- 10 percentage points. For the 61 percent of those aged
25 to 34 who knew this fact, the error is +/- 7 percentage points.

15 The sampling errors for the 88 to 92 percent of those in other age
groups who said they should check their report from time to time are +/- 7
percentage points or less.

16 The sampling errors for the 29 to 37 percent of those in all other age
groups who named the Internet are +/-7 percentage points or less, except
for the 37 percent of those aged 18 to 24 (+/- 10 percentage points).

  Appendix IV Certain Demographics and Credit Experiences Are Associated with
              Consumers' Understanding of Credit Reporting Issues

                Table 9: Selected Survey Responses by Age Group

                              Age (in percentages)

       Survey Question 18 to 24 25 to 34 35 to 44 45 to 54 55 to 64 65 +

Knew credit history could affect employment decisions 18% 29% 35% 31% 46%
36%

Knew credit history could affect ability to rent an apartment 80 74 75 73
79 61

        Knew the correct definition of a credit score 55 74 80 77 74 60

Knew having credit for a short time could affect scores negatively

41 61 53 53 5230

Knew frequently applying for new credit could affect scores negatively 60
74 62 59 65 44

  Actively Employed Consumers Scored Slightly Higher on Our Survey

Source: GAO.

Note: The sampling errors are +/- 7 percentage points or less, except for
the three estimates under the credit score section for those aged 18 to
24. These errors are +/- 10 percentage points; for the 18 percent of those
aged 18 to 24 who knew their credit history could affect employment
decisions, the error is +/- 8 percentage points.

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.17

As figure 15 shows, we also found that actively employed consumers were
more likely to obtain their credit reports and scores than consumers in

17Once again, the differences in the results of the cross-tabulation and
regression analyses reflect the cumulative effect of independent factors.
For example, age as well as employment status may affect the results for
students and retirees. See appendix V.

Page 95 GAO-05-223 Credit Reporting Literacy Appendix IV Certain
Demographics and Credit Experiences Are Associated with Consumers'
Understanding of Credit Reporting Issues

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.

Figure 15: Credit Reporting Experience by Employment Group Percentage 70

64

60

50

47

41

40

40

30

                                       21

19

20

15

14

12

10

0 Obtained report Obtained score Disputed

Experience

Actively employed Student Not employed Source: GAO.

Note: The sampling error for students is +/- 11 percentage points or less,
except for the 41 percent of student who had obtained their report (+/-17
percentage points).

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.18

18The sampling error for the 84 percent of students who were unable to
name any of the CRAs is +/- 12 percentage points.

Page 96 GAO-05-223 Credit Reporting Literacy

  Appendix IV Certain Demographics and Credit Experiences Are Associated with
              Consumers' Understanding of Credit Reporting Issues

            Table 10: Selected Survey Responses by Employment Group

Employment group (in percentages)

             Survey Question Actively employed Student Not employed

       Knew credit history could affect employment decisions 32% 29% 34%

Knew the correct definition of a credit score 77 70

Knew they could add a statement to their credit report 43 21

  Consumers with Credit Experiences Scored Higher on Our Survey

Source: GAO.

Note: The sampling error for students who knew that their credit history
could affect employment decisions is +/- 16 percentage points; all other
sampling errors for students are +/- 14 percentage points or less.

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.

Appendix IV Certain Demographics and Credit Experiences Are Associated
with Consumers' Understanding of Credit Reporting Issues

Figure 16: Average Total Scores and Credit Experience Consumers'
experience

0 10 20 30 40 505560 NationalSurvey score (percent of correctly answered
questions)

mean

Source: GAO.

Note: Brackets on each bar represent the sampling error (or confidence
interval) for that estimate at the 95-percent level of confidence.

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.

  Appendix IV Certain Demographics and Credit Experiences Are Associated with
              Consumers' Understanding of Credit Reporting Issues

 Table 11: Selected Survey Responses and Consumers' Credit Reporting Experience

Credit report Credit score Dispute (in percentages) (in percentages) (in
percentages)

              Did not Viewed view credit Survey Question credit report report

Did not

Obtained obtain credit credit Did not score score Disputed dispute

      Knew how long information remained on report 59% 30% 64% 38% 69% 42%

Knew credit history could affect the rate of interest charged on a loan 88
71 93 75 91 79

Knew having a credit history for a short time could affect scores
negatively 59 36 64 41 61 46

Knew frequently applying for credit could affect scores negatively 70 47
76 52 75 57

Knew using most of your available credit could affect scores negatively 59
41 61 47 68 48

Source: GAO.

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.

Appendix IV Certain Demographics and Credit Experiences Are Associated
with Consumers' Understanding of Credit Reporting Issues

Figure 17: Credit Reporting Experience and Experience with Automobile
Loans or Home Loans/Mortgages Percentage 80

70 66

60

50

40

40

29

30

21

20

10

                                       7

10

0 Obtained report Obtained score Disputed

Experience

Had auto loan/mortgage Did not have auto loan/mortage

Source: GAO.

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.

  Appendix IV Certain Demographics and Credit Experiences Are Associated with
              Consumers' Understanding of Credit Reporting Issues

Table 12: Selected Survey Responses and Experience with Automobile Loans or Home
                                Loans/Mortgages

Auto loan/mortgage (in percentages)

Had an auto/ Did not have Survey Question mortgage loan auto/mortgage loan

       Knew they had the right to obtain their report at any time 75% 56%

               Knew how long information remained on report 52 30

              Knew the correct definition of a credit score 76 49

 Knew having a credit history for a long time could affect scores positively 85
                                       59

    Knew frequently applying for credit could affect scores negatively 65 43

        Knew low checking account balances had no effect on scores 48 27

Knew using most of the credit available to you could affect scores negatively 57
                                       34

    Knew they had the right to add a statement to their credit report 46 24

  Being a Victim of Identity Theft and Being from a Free Report State Had Little
  Effect on Consumers' Survey Scores

                                  Source: GAO.

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. 19

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

19We did not use adverse action in the regression analysis because it is a
subset of those who requested their credit reports. The regression was
designed to predict the knowledge score of the general population, not the
score of those who had obtained their credit report.

Page 101 GAO-05-223 Credit Reporting Literacy Appendix IV Certain
Demographics and Credit Experiences Are Associated with Consumers'
Understanding of Credit Reporting Issues

obtain their credit reports (72 percent versus 56 percent).20 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.21
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.22 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).23

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

20The sampling error for the 72 percent of victims of identity theft who
had obtained reports is +/- 8 percentage points.

21The sampling error for the 48 percent of identity theft victims who had
had information removed after a dispute is +/- 14 percentage points. The
sampling error for the 74 percent of those who had not been victims and
had had information removed is +/- 7 percentage points.

22The sampling error for the 53 percent of identity theft victims who knew
this fact was +/- 9 percentage points.

23The sampling error for the 78 percent of those who obtained reports
because of adverse action and who ordered their reports themselves is +/-
8 percentage points.

Appendix IV Certain Demographics and Credit Experiences Are Associated
with Consumers' Understanding of Credit Reporting Issues

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.24 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).25 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).

24In Colorado, a CRA is required to notify consumers of their right to a
free credit report if a CRA has received 8 credit inquiries pertaining to
the consumer or the agency has received a report that would add negative
information to the consumer's file. C.R.S. S: 12-14.3-104(2)(a).

25The sampling error for the 38 percent of females and 21 percent of males
who said that they added a written statement to their report after a
dispute is +/- 8 percentage points.

Page 103 GAO-05-223 Credit Reporting Literacy

Appendix V

A Regression Model to Explain Differences in Total Knowledge Scores

                             Variables in the Model

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.1 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.

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

1The influence or statistical impact measures how much the value of the
dependent variable will change for a change in the value of a specific
independent variable. It is a statistical relationship and not causal. The
coefficient of the independent variable in the regression model is the
measure of influence of that variable.

Page 104 GAO-05-223 Credit Reporting Literacy

 Appendix V A Regression Model to Explain Differences in Total Knowledge Scores

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.

                  Table 13: Variables in the Statistical Model

Variable                                                 Percent of Sample 
Dependent Variable = Total Knowledge Score (percent      
correct)                                                 
Independent Variables:                                   
Ethnic Classifications                                   
o White                                                        68.8%       
o Black                                                        12.4        

o  Hispanic  o Other                 13.9 4.9                              
o Age*                                        Not applicable since it is a 
                                                          continuous variable 
Household Income (per year)          
o  Below $25,000                                     28.2                  

o  $25,000 to $49,999                                                 27.4 
o  $50,000 to $74,999                                                 20.3 
o  $75,000 and above                                                  24.1 
Employment Status                                          
o  Actively employed (full- or part-time employment)                  60.4 
o  Student                                                             3.7 
o  Not employed (homemakers, retired or unemployed)                   31.1 
o Other                                                                4.8 

Gender                                                                     
o Male 48.2                                                                
o  Female 51.8                                                             
Education Level                                                            
o  Less than high school 10.4                                              
o  High school completed 30.4                                              
o  Some postsecondary 28.5                                                 
o  At least a college degree (Bachelor's degree or more) 30.7              

 Appendix V A Regression Model to Explain Differences in Total Knowledge Scores

(Continued From Previous Page)                           
Variable                                                 Percent of Sample 
Financial Experience                                     
o  Living in a free credit report state                        12.8        
o  Having had a mortgage or an automobile loan                 77.0        
o  Having seen one's credit report                             57.8        
o  Having seen one's credit score                              32.8        
o  Having disputed the contents of a credit report             17.9        
o  Having experienced identity theft                            9.8        
*The average age was 45.2 with a 17.3 standard           
deviation.                                               

  The Structure of the Model

                                  Source: GAO.

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.2 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

2An effect is statistically significant if the value of a test statistic
used to test it provides strong evidence that the observed effect did not
occur by pure chance. Effects can be statistically significant at
different levels, for example, a result can be statistically significant
at a 5 percent level. The smaller the level at which a result is
statistically significant, the stronger the evidence is that the observed
effect did not occur by pure chance.

Page 106 GAO-05-223 Credit Reporting Literacy

 Appendix V A Regression Model to Explain Differences in Total Knowledge Scores

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.

 Table 14: A Regression Model to Explain Differences in Total Knowledge Scores

Dependent Variable = Total Knowledge Score (percent correct answers)
Independent Variable                                           Coefficient 
Intercept                                                          40.47%* 
Ethnic Classifications                                    
o White                                                         Base state 
o Black                                                         .15        
o  Hispanic                                                         -6.31* 
o Other                                                         1.31       
Age of the individual (years)                                  -.09*       
Household Income (per year)                               
o  Below $25,000                                                Base state 
o  $25,000 to $49,999                                          3.11*       
o  $50,000 to $74,999                                          2.94*       
o  $75,000 or above                                            3.28*       
Employment Status                                         
o  Actively employed (full- or part-time employment)            Base state 
o  Student                                                          -3.33* 
o  Not employed (homemakers, retired or unemployed)            -1.56       
o Other                                                        -3.13       

                 Page 107 GAO-05-223 Credit Reporting Literacy

o  Female Gender                                                Base state 
o Male                                                                 .59 
Education Level                                            
o  Less than high school                                        Base state 
o  High school completed                                             8.51* 
o  Some postsecondary                                               11.49* 
o  At least a college degree (Bachelor's degree or more)            13.79* 
Financial Experience                                       
o  Living in a free credit report state                               1.38 
o  Having had a mortgage or an automobile loan                       3.73* 
o  Having seen one's credit report                                   5.15* 
o  Having seen one's credit score                                    4.24* 

 Appendix V A Regression Model to Explain Differences in Total Knowledge Scores

(Continued From Previous Page)                           
Dependent Variable = Total Knowledge Score (percent correct answers)
Independent Variable                                           Coefficient 
o  Having disputed the contents of a credit report             5.13*       
o  Having experienced identity theft                           1.14        

                            The Statistical Results

Source: GAO. Note: R2 = .455. Observations in the analysis = 1380. Items
with a * are statistically significant at the alpha = .05 level.

The model shows that the independent variables explain about 45 percent of
the variation in the total knowledge score as shown in the R2 statistic.
Most of the independent variables in the model are statistically
significant, and their influences are reasonable.3 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

3Other factors not collected, and thus not studied, could have affected
the total knowledge score if they had been available. For simplicity, our
equation was linear. Using a more complex non-linear functional form could
affect both the explanatory power of the equation and the coefficients on
the independent variables. In our judgment, variations in the functional
form would increase the complexity of our analysis without improving the
ability of the equation to explain variations in the total knowledge
scores.

Page 108 GAO-05-223 Credit Reporting Literacy

 Appendix V A Regression Model to Explain Differences in Total Knowledge Scores

  Using the Regression to Illustrate the Simultaneous Influences of Several
  Variables

tenth of 1 percentage point.4 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.

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

4This finding is consistent with the idea that older consumers are less
knowledgeable or familiar with modern credit reports and credit scoring
approaches to loan applications. We also tested to see if there was a
non-linear relationship between age and total knowledge scores to see if
both the younger and older consumers were less knowledgeable. This tested
non-linear relationship did not improve the model so we stayed with the
simpler linear model.

Page 109 GAO-05-223 Credit Reporting Literacy Appendix V A Regression
Model to Explain Differences in Total Knowledge Scores

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.5

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.

5In practice, our model is one of many models that could be used to
reasonably represent the relationship between total knowledge scores and
the independent variables. If we had chosen additional independent
variables or a different functional form, we could have produced other
reasonable models. However, given the data available to us and our desire
to keep a simple functional form with reasonable statistical properties we
chose to report this model and use it to evaluate how the total knowledge
score of our "straw" consumers varied.

Appendix V A Regression Model to Explain Differences in Total Knowledge
Scores

Table 15: Comparing Two Hypothetical Hispanics Using the Regression Model

Consumer 1                            Consumer 2                    
Intercept                      40.47% Intercept                     40.47% 
Hispanic                        -6.31 Hispanic                       -6.31 
Age 25 (age times -.09)         -2.25 Age 25 (age times -.09)        -2.25 
Household income                    0 Household income over $75,000   3.28 
less than $25,000                                                   
Employed                            0 Employed                           0 
Male                              .59 Male                             .59 
Less than high school               0 At least a Bachelor's degree   13.79 
education                                                           
No auto loan or mortgage            0 Has an auto loan or mortgage    3.73 
Has not seen a credit report        0 Has seen a credit report        5.15 
Has not seen a credit score         0 Has seen a credit score         4.24 
Total Knowledge Score            32.5 Total Knowledge Score          62.69 

                                  Source: GAO.

Appendix VI

Web Appendix on Credit Reporting Literacy Survey Data

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.

Appendix VII

Comment from the Department of the Treasury

Appendix VII Comment from the Department of the Treasury

Appendix VIII

Comments from the Federal Trade Commission

Note: GAO comments supplementing those in the report text appear at the
end of this appendix.

Appendix VIII Comments from the Federal Trade Commission Appendix VIII
Comments from the Federal Trade Commission Appendix VIII Comments from the
Federal Trade Commission

                                 See comment 1.

Appendix VIII Comments from the Federal Trade Commission

            Appendix VIII Comments from the Federal Trade Commission

     The following are GAO's comments to FTC's letter dated March 4, 2005.

Referring to our finding that respondents did not understand that
resolving

  GAO Comments

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.

Appendix IX

                    GAO Contacts and Staff Acknowledgements

Yvonne D. Jones, (202) 512-8678

  GAO Contacts

Debra R. Johnson, (202) 512-9603

  Staff Acknowledgements

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. Pinero, 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.

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