Why in the world would Congress provide some consumers with free access to credit scores, but not others?
This could happen under a measure being considered by lawmakers that would grant free access to people whose credit scores were used to deny them credit or a job. As significant as this is, what about the rest of us?
The proposal, included as an amendment to the financial reform legislation recently passed by the Senate, isn't far-reaching enough. There's still time to fix this during the reconciliation process, but you should let your representative and senators know that when it comes to something as important as credit scores, half a loaf isn't enough.
I hope you know there's a difference between your credit report and credit score. Your report contains a history of your credit usage, including how much you've borrowed and how well you've paid your bills.
Your credit score is calculated using information in your credit report. The resulting three-digit number is used to determine whether you are a good credit risk.
The effort to give consumers access to their reports and scores has a long history. In 1970, the Fair Credit Reporting Act (FCRA), which is enforced by the Federal Trade Commission, was passed to ensure a certain level of fairness, accuracy and privacy of the personal information collected by credit-reporting agencies. It's probably hard to believe now, but there was a time when consumers didn't have a right to access the information collected on them and used by lenders, insurers and even employers. Once the files were open, if you wanted to routinely see your credit reports, you had to pay for them.
It took 33 years for Congress to amend the FCRA to include the Fair and Accurate Credit Transactions Act of 2003 (FACT), which gave people the right to receive free annual reports from the three major credit bureaus. The 2003 amendment also gave consumers the right to request their credit scores, including an explanation of the factors that went into calculating the score. But the score wasn't free. The law said people could be charged a "reasonable" fee. You can get a credit score for about $8.
When Congress required the bureaus -- Equifax, TransUnion and Experian -- to provide free annual reports, lawmakers should have also mandated the same free access to credit scores. Having your credit report without the score is just half the story.
What's in your credit report and the credit score generated by that information have a major impact on the interest rates you pay on loans, the job you may get or the insurance rates you're assigned.
There are a number of credit-scoring models, but the one most lenders use is the FICO credit risk score created by San Rafael, Calif.-based Fair Isaac. The FICO score ranges from 300 to 850. The higher your score, the more favorable terms you can get for loans and such.
"I'm very pleased that the bill includes my credit score amendment, which is going to help arm consumers with the information they need to take control of their own financial health," said Sen. Mark Udall (D-Colo.), who proposed the Fair Access to Credit Scores Act of 2010.
Well, it's going to arm some people. To be truly significant, the final bill needs to give free access to credit scores for everyone, regardless of any action taken by a creditor or company. The earlier people have this information, the more likely they can make changes to improve their scores.
If a better provision is passed, please take advantage of the free access. More people need to get their free credit reports every year. Two-thirds of Americans haven't ordered a copy of their credit report in the past year, according to a recent survey by the National Foundation for Credit Counseling (NFCC).
You can get your report by going to http://www.annualcreditreport.com.
"So many chase their score without paying adequate attention to the credit report," said Gail Cunningham, vice president of public relations for the NFCC. "I think that having access to your financial information is certainly a positive step. However, consumers need to understand that the credit score is just a snapshot of that moment in time."
At a time when we are constantly telling folks they need to handle their finances better, the government should push harder to give people easy access to all the information they need.