Give people better access to credit reports
Consumers are getting better access to their credit reports and scores, but it’s still not enough.
On Tuesday, the Consumer Financial Protection Bureau said that about a million people working with nonprofit credit counseling agencies will soon get FICO scores and Experian credit reports purchased on their behalf for free. The offer does not apply to credit reports from Equifax or TransUnion.
Counseling organizations often purchase their clients’ credit reports and scores, but until now, they “have generally been prohibited by their contracts with the credit reporting agencies from giving the consumer the credit report or score that they have purchased on that consumer’s behalf,” the bureau said in a blog post.
“This no- sharing policy is common in contracts signed by business users of credit reports and scores,” it added.
“I think those contractual provisions are appalling,” said Chi Chi Wu, an attorney with the National Consumer Law Center. “Consumers aren’t in control, they are the commodity. We are the thing credit bureaus trade in.”
Remember that scores and reports are two different products sold by different companies. The three major credit
bureaus — Experian, Equifax and TransUnion — compile data about consumers provided by lenders. They sell these consumer reports to lenders, landlords, employers, insurance companies and others. ( Some states restrict the use of credit data in employment and insurance.)
Scoring companies apply a formula to a person’s credit report and boil it down into a number. FICO scores are used most often by lenders, but others provide scores including the bureaus themselves. A person’s score can vary depending on which scoring formula is used ( FICO sells many versions) and which credit bureau the information came from, because not all lenders report information to all three bureaus.
Under the deal announced Tuesday, participating counseling agencies can show clients their FICO score no matter which bureau it came from.
Credit Builders Alliance, an association of nonprofit organizations that provide financial counseling, has agreements with TransUnion and Experian that let its members pull credit reports and scores on clients. Under those contracts, counselors can show consumers their credit report, but they cannot give them a copy to take home, said Sarah Chenven a director with the alliance. The contracts prevent counselors from even showing consumers their FICO score, although they can show them other scores, she added.
In the future, most of its member organizations will be able to give clients a FICO score and an Experian credit report to take home. “This is very exciting news,” she said, because “the FICO score is still so widely used by so many lenders” and the score “most consumer recognize.”
FICO, based in San Jose, said it is letting “eligible credit and financial counseling organizations” participate in its FICO Score Open Access program. This program lets institutions “share FICO Scores you already purchased for risk management decisions with your customers — with no additional score fees charged by FICO.”
More than 30 financial institutions participate in this program. Each one can choose which customers get FICO scores and how often. Many are offering it only to credit card customers, but Sallie Mae is offering it on student loans, Hyundai on car loans and Nationstar on mortgages, a FICO spokesman said.
A series of federal laws has given consumers more access to their credit reports and scores. They can get a copy of their report from each of the three credit bureaus once a year at www. annualcredit report. com, but this report does not come with a free score.
If they are denied credit or charged a higher rate based on their credit report, they are generally entitled to a free copy of the credit report and score the lender used to make its decision. Consumers can also get free credit reports if they are unemployed, applying for jobs, on welfare or are the victim or possible victim of fraud.
Paul Stephens of the Privacy Rights Clearinghouse said consumers can request a free credit report from each of the three bureaus if they place a fraud alert on their credit report, which is free to do. The alert is in effect for 90 days. Each time it expires, they can place another alert, and request another free credit report from each of the bureaus.
This is progress, but not enough, said Ed Mierzwinski, consumer program director with U. S. PIRG. “Credit reports should be free and credit scores should be free on an ongoing basis.” Credit bureaus “have become incredible gatekeepers to employment and credit success.”
They have capitalized on this position by selling credit monitoring and identity theft insurance to consumers who are afraid they won’t get a loan or a job because of what’s in their credit report. “It’s a protection racket,” he said.