Free Annual Credit Reports, Except for One Detail...
Thanks to two federal laws, the Fair Credit Reporting Act (FCRA) and the Fair and Accurate Credit Transactions (FACT) Act, consumers are entitled to receive a free copy of their credit report each year, from each of the three reporting agencies. There is even a handy website portal for all three: annualcreditreport.com.
Considering the power of the financial industry in Congress, this legislation counts as a pretty big win for consumers, since it allows them to confirm the accuracy of their own information. So what's missing? (Below the fold...)
You gotta hand it to this industry -- as usual, they managed to keep a finger in the money pot. These free credit reports do not include the most important, bottom line figure for consumers -- their FICO score. This is the one number that lenders use to sum up the whole credit report, and to put all the individual pieces into context.
The credit reporting agencies are quite happy to provide consumers the free credit reports (after all, electrons are cheap), as long as they can also force the consumers to jump through hoops on each of the agencies' websites, thereby giving the agencies a chance to sell the FICO scores as well. One agency charges $7 for a one-time peek, or about that per month to monitor changes.
So on my least-cynical days, I'd say that this legislation is a win-win for the industry and for consumers. On my more cynical days, I wonder why these credit reporting agencies need to profit at both ends of the game -- both charging the creditors who make inquiries and the consumers who they track.
As an aside -- beware of imposters, who use slight variations on this annualcreditreport.com URL. One wonders why the FTC doesn't just host the portal itself at a .gov address?
In my experience with these agencies, it takes a real and unending fight to get incorrect information off your report if the creditor who reported it insists that it is correct. You can make a statement that can be included in credit reports pulled by future "creditors", but the damage is done to your FICO score. If there is a question, or a dispute, as to whether the information is correct, the bureau sides with the creditor unless you can clearly prove otherwise. Creditors don't have to prove a thing. How do you proves something doesn't exist? Then, in one case I was successful at removing the information on all three credit reports only to have it reappear later when a collector decided to re-report it. I got it removed again, and it showed up again.
These credit bureaus work for creditors, and do not help consumers. Their mission is to report warnings whenever possible, to creditors, even if it is just a suspicion. In my estimation, due to the consequences in insurance rates and job opportunities, it should be considered slander or defamation of character. But who has money to pay an attorney to get justice on these kinds of damages? If you can't find a decent job due to your credit rating, you can't afford to pay a good attorney to help you.
The credit bureaus can't be public agencies of the government, because they work for creditors, not voters. I'm all for credit accountability, but it needs to be fair and balanced. The current system isn't, and is causing financial distress to innocent people. I am highly suscpicious of the motives behind these "free" credit reports. One complaint I have about them is that they have incomplete information. You have to pay for a report with all the information on it.
Jim Anderson
The Truth About Credit
January 5, 2007 8:13 AM | Reply | Permalink
I noticed that and we need the FICO for free as well as the nebulous, mysterious formula.
I couldn't believe OR didn't pass the demand that insurance companies stop using credit history to determine insurance rates.
January 6, 2007 1:26 PM | Reply | Permalink
Re: If you can't find a decent job due to your credit rating, you can't afford to pay a good attorney to help you.
Unless you are going to work in a financially sensitive or security-clearance-required position, your credit report will probably not hurt your job chances. In fact, the potential employer may not even bother to obtain it. I've only once had an employer pull my credit (and this was a financial industry job) even though I've signed waivers allowing it on multiple occasions. When employers do background checks they are mostly interested in any possible criminal behavior, and in verifying that the applicant isn't lying about his resume.
On the other hand, the use of credit reports by insurance companies is way, way out of hand, IMO. My partner has crappy credit, but an excellent driving record (better than mine in fact). His insurance rates were double mine, until we added him and his car to my policy (where only my credit, but both driving records, matter) and his bill was cut in half. This is, simply, absurd.
January 6, 2007 8:14 PM | Reply | Permalink
It is true that it depends on your career, how important the credit report is in the hiring process. In my past career path, it has been critical. Going forward, it doesn't make any difference, thank God! There are so many errors on my credit report that I can't seem to get rid of, that it would be a nightmare. I'd have to start taking legal action.
Jim Anderson
The Truth About Credit
January 10, 2007 11:28 AM | Reply | Permalink
I will start it with an example as in you may be out of school, but that doesn’t mean you’re free from report cards. In fact, if you want to buy a house, or any other big-ticket item, a lender will look up your “grade” as soon as you come knocking. That grade is your credit score.
There are many varieties of credit scores available to lenders. But the most widely used for large loans are Credit">http://www.creditmagic.org/knowledgebank/credit-scoring.html">Credit Scores, which are based on a scoring system developed by Fair, Isaac & Co. Following are five things you can do to boost your creditworthiness, plus more information on obtaining your personal score.
1.) Review your reports from all three credit bureaus for accuracy once a year as well as several months before applying for a loan.
2.) Paying your bills on time is always a good practice, and it’s especially critical that you make prompt payments close to the time you need a loan.
3.) A heavily weighted factor in your FICO score is how much money you owe on your credit cards relative to your total credit limit. Generally, it’s good to keep your balances at or below 25 percent of your credit card limit
4.) Pay off debt rather than moving it around i.e. since the ratio of your credit card balance to your credit limit is key, closing out an account and transferring the balance simply means you increase that ratio, which is likely to lower your score.
5.) Don’t close unused credit card accounts near loan time.
December 24, 2008 1:26 AM | Reply | Permalink