What are you getting with ‘free’ credit scores

FICO takes data provided by the credit bureaus, and the bureaus must pay FICO to run those scores for them.

One would assume that Mesa’s credit bureau, Experian, would learn from their mistakes. However, they were just recently forced to pay a $3 million penalty to settle a claim from federal regulators that the company sold credit scores that were useless to consumers.

The Consumer Financial Protection Bureau announced the penalty and alleged that Experian’s issue was like complaints filed against Equifax and TransUnion, which had a much higher fine amount than Experian’s case.

In all three of these instances, the credit bureaus would offer consumers credit scores for educational purposes. These scores, however, were nothing like the credit bureau scores (FICO) provided to creditors and lenders. Therefore, they were virtually useless to consumers who paid to access them.

Where Do Credit Scores Come from Then?

Credit card companies, banks, and mortgage lenders all use the FICO score, which is created by the Fair Isaac Corp. FICO takes data provided by the credit bureaus, and the bureaus must pay FICO to run those scores for them.

The CFPB stated that Experian, like the other two agencies, offered their credit scores to consumers, but those scores were misleading because Experian said that they offered the same type of score used by lenders when assessing a consumer’s credit worthiness. They were comparing their rating service to that of FICO.

While the in-house scores provided by the Bureau were close to the original FICO score, there were times they were incredibly inaccurate, per a 2012 report issued by the CFPB.

There were thousands of consumers using the service that had FICO scores of 680 to 740, but their educational scores from Experian were either much higher or much lower than the reported number. These categorized consumers differently in the great, good, and fair categories. The CFPB estimated that 20 percent of instances were incorrect and the categorizations were flawed.

Educational Scores Not the Same as FICO

The biggest reason for the penalty against Experian was that they led consumers to believe that their educational scores were FICO scores, but that was not the case. While Experian did disclose this information, the disclosures were not prominent, and most consumers never saw the disclosure about their score’s accuracy.

In the suit, Experian did not admit or deny their wrongdoing, but they agreed to pay the settlement. Also, the company does not believe that they violated any laws, and they stated such in their official press release.

The CFPB is there to protect consumers from inferior product and marketing disclosures and requires that these companies disclose all pertinent information to consumers promptly. Furthermore, the CFPB requires that these disclosures are easily seen by the customer and not tucked away.

Experian, while paying $3 million, is not paying anywhere near as much as the other two credit bureaus who were also fined for similar actions. The other companies were also accused of offering discounted or free credit scores, but the teaser was that the consumer was forced to pay for credit monitoring; therefore, it was not free.

For now, consumers should always read the fine print on the “free” credit score offers. Not only should they work with a reputable company, but understand what service they are receiving and when the free trial ends, what their options are for canceling or how much