Finally: Feds say credit scores should be free to all
Richard Cordray (Bob Sullivan photo)
A high-ranking government official is urging banks to give consumers a free, regular peek at their credit score, a step that could revolutionize the relationship that Americans have with their credit. It's time that happened.
Today, many consumers confuse credit reports and credit scores, and are equally confused about what they are entitled to see and when. Consumer reporters like me have written millions of words trying to explain the distinctions, but to most families, these are meaningless. They just want to buy a car, or a home, or get auto insurance, or apply for a job. Credit scores and reports are entirely unimportant until that one day every few years when credit scores mean everything.
It's time to expose the financial version of the Wizard of Oz as just a man behind a curtain.
On Thursday, head of the Consumer Financial Protection Bureau Richard Cordray called for free sharing of credit scores after his agency released a report examining the prevalence of credit report and credit score errors.
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"Credit reports and scores can determine the terms of people’s mortgages, whether they qualify for auto loans, or if they are eligible for different credit cards,” Cordray said. “Making consumers’ credit scores freely available on their monthly statement or online makes it easier for them to spot problems with their credit report. We will continue to work to ensure that credit report disputes are fully investigated, errors are fixed, and consumers are treated fairly.”
Cordray recently sent a letter to the nation's largest credit card issuers calling for inclusion of the score in monthly statements.
The bureau says only one in five Americans currently check their credit report, the list of who's been bad a who's been good that's maintained by the nation's credit bureaus. There's two good reasons for that: 1) The reports are largely meaningless, unless a massive error screams off the page 2) The reports are an inexact representation of what banks and other creditors see anyway.
Cordray rightly points out that consumers would be more inclined to check their credit reports if they saw their credit scores on a regular basis.The effect would be greater for consumers who most need to pay attention to their credit behavior. It's human nature -- when you get a B on a paper, you read the teacher's comments more carefully than when you get an A.
There is already a smattering of ways to see your credit score: When you apply for a mortgage, you can see your scores, for example. Discover credit card has just began sharing scores with consumers. You can buy the scores through a number of services. You can obtain free copies of the score one a few websites, including my partners at Credit.com.
Of course, there are a number of hurdles to making this happen. Giving away free scores would ruin a lot of business models. The credit card issuers can't just give them away -- they are generally governed by non-disclosure agreements. New agreements would have to be signed. Also, there's the massive issue that not all scores are created equal -- in fact, every consumer might have dozens, if not 100 or so, credit scores. Which one would Cordray have banks give to consumers?
And there is this legitimate concern from the credit industry: Credit scores lose effectiveness when they lose mystery. The secrecy surrounding the score is important so some consumers can't game the system. In the end, this argument doesn't sway me. Right now, all consumers are punished because a few cheat, and that's crazy. But the industry has a valid concern that complete transparency might render scores useless to them, and that can't be dismissed out of hand.
Nevertheless, today is an important day. Not that long ago, credit reports themselves were shrouded in complete secrecy, and consumers had no right to know their contents. Making credit scores freely available to all is the logical end of the original Fair Credit Reporting Act. The time has come.