Why we need free credit scores now

For nearly 10 years, we've all been able to get free credit reports. But, with few exceptions, we still can't see our credit scores without paying for the privilege.

By Stacy Johnson Mar 23, 2012 10:18AM

This post is from Stacy Johnson at partner site Money Talks News.


Money Talks News on MSN MoneyIt's no exaggeration to say your credit score can change your life. It  can determine whether you get a job or own a home.  It affects how much you pay for insurance. It influences how much you pay when you borrow, which determines how long it will take to become debt-free.


Much like your final grade summarized your command of a course in school, your credit score is the distillation of everything in your credit history. Thanks to a law change in 2003, you can now see your credit history free once a year by going to AnnualCreditReport.c​om. Yet, if you want to see the most commonly used "final grade" -- your FICO credit score -- you're expected to pay $19.95.

That's not fair. It shouldn't be allowed to continue, and you can help change it. To see what you can do, check out the video below, then read on for more.

Credit reports and credit scores

The reason we have free credit reports through AnnualCreditReport.c​om is because consumers and their advocates fought for it. To quote nonprofit Consumers Union: "Consumers won the right to a free copy of their credit reports nearly a decade ago by bombarding Congress with hundreds of thousands of messages."


Let's try the same tactic again. As you saw in the video above, Consumers Union is sponsoring a free credit score petition, which they'll forward to Congress. Here's why I want you to join me in signing it:


Image: Couple looking at computer (© Corbis)You're being charged for a number based on your information. You have the right to review information compiled about you, from your medical history to your driving record. That's only fair. If any agency, private or public, is going to store data about you in ways that can affect your life, you should have the right -- even the obligation -- to review it for accuracy. Certainly, your credit scores fall into this category.


Today, private companies like FICO credit score creator Fair Isaac and the big three credit-reporting agencies -- TransUnion, Equifax and Experian -- charge whatever they choose for access to something I'd argue is already yours.


Credit scores shouldn't be proprietary. To come up with a three-digit FICO score, Fair Isaac applies a proprietary formula to the information in your credit reports. Like the formula for Coca-Cola, Fair Isaac's method for coming up with the score is a trade secret. And like the recipe for Coke, it's one they presumably make a ton of money from.


But this isn't soda that you can choose not to consume. It's your financial life, and you don't have a choice whether or not to participate. If everyone in America was required to drink Coke, wouldn't we demand to see what's in it?


Fair Isaac provides hints into its score formulation on Web pages like this, and calls it "education." What would be educational is to know exactly how these scores are formulated and precisely what influences them. There's only one reason to keep a formula secret: so it can be sold for more money.


Existing "free" scores can be confusing and misleading. Go to MyFICO.com right now and at the top of the page you'll see "Get your FICO score. Free." in monster type. But is it really free? No. To get your "free" score, you're required to enroll in something called Score Watch, which after a 10-day free trial begins automatically billing you $14.95 a month for a minimum of three months. You'll see similar up-selling at the big three credit agency sites.


There's also confusion created by other, less-common credit scores. For example, Credit Karma offers a no-strings-attached free score. But it's not the FICO score most commonly used by lenders. Instead, you get TransUnion's proprietary score, called VantageScore, a model developed jointly by the three big credit-reporting agencies. 


Granted, this score is better than none, and it can at least give you an indication of your overall creditworthiness. But since it isn't the score most lenders will use, it's not good enough.


Other half-measures in the law miss the point. There's another way to get a free credit score: Get denied for credit or get offered a crummy interest rate. Since July, lenders who deny your loan application or offer you less than the best rate have to explain why, including your score, if that was a factor.

 

But getting a free score after you've been denied credit is shutting the barn door after the horse has escaped. Your credit score is most important before you apply, not after you've been rejected.


Free scores and free reports allow us to be smarter with our credit. I recently wrote the post "Should I pay for credit monitoring?" In it, I quoted Lynnette Khalfani-Cox, a personal-finance author who supports the idea of paying for a monthly credit-monitoring program so consumers can get unlimited access to credit reports and scores.  Here's what she said:
The single biggest reason to use credit monitoring is that you'll receive an incredible amount of credit education simply by staying on top of your credit. The mere act of constantly reviewing your credit files and being aware of changes to your credit profile promotes enhanced financial literacy and better credit awareness.
Well spoken, Lynnette. But allowing credit-reporting agencies and Fair Isaac to charge for access to the tools to make you a better borrower doesn't promote education, it hinders it. Start offering consumers precise information at no cost, and you'll start shattering myths about how credit works.


Join in

If you agree with my logic, show your support by signing the petition. Then share this story with your friends. Let's see if together we can right a wrong.


More from Money Talks News and MSN Money:

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18Comments
artsyone
Mar 23, 2012 1:35PM
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Now..if we could just get all of these folks to NOT use my social security number! Never meant to be a national ID and way too easy to rip off people..
Bethy-CreditKarma
Mar 23, 2012 12:42PM
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Thanks for mentioning Credit Karma, Stacy! Just as a clarification, we provide three free credit scores: VantageScore (which you mentioned), TransRisk score (TransUnion's consumer credit score) and your Auto Insurance score. We definitely echo your sentiments that consumers should be able to access their credit information--and scores--for free.
Blog1
Mar 23, 2012 2:16PM
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Your credit score is yours to know, just like your bank balance.

Why is it a secret and contolled by Credit Bureaus?

Should be available to all any time u want to find out.

>>>> Can the US Law Makers do this favor to all the people who vote them into their Privileged Offices and they enjoy Golden Perks?

It is high time.

whippets101
Mar 23, 2012 4:51PM
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it is time to have free access to the credit reports that are used by company's to judge the amount of credit to apply to the applicant.
michael underwood
Mar 23, 2012 2:10PM
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The scoring system is a scam!!! Everytime i pull up my score its always at least 50 points lower  than what the banks show. If they are seeing something different then whats the point in signing up to see a score that no bank goes by. They should show us the exact same score and scoring system the banks use. Not some B.S. that is useless when it comes time to get a loan.
james mccoy
Mar 23, 2012 2:13PM
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i had 14.95 taken out of my checking account for over two years without noticing, i had singed something electronically without being aware----the credit watch company said i needed to; to get a free credit score they stole over two hundred dollars and wells fargo could only go back for a few months to recover less than 25% of the money taken from me.........they credit score companies suck.....what happen to me should be illegal
major s (LARRY LOSER)
Mar 23, 2012 4:06PM
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Credit reporting is a racket.  This is their credit report not yours, they own it and control it. Obtaining this information should be illegal.   If  you want a copy you have to pay for it and sign a statement that you will not sue them for inaccuracies in this report.

(read the fine print)

I had a mortgage loan 10 years ago and the loan was sold to HouseHold bank and the crooks pulled my credit every month.

I was paying the crooks 13% rate and they were trying to steal my house, i finally got rid of them but got another bunch of crooks,

Merrill Lynch and Wilshire Credit.

Credit reporting and rating for purchase of Food, clothing and shelter should be outlawed, 

THe can review their files for other types of credit one time not every month.

The government as allowed is citizens to be singled out and place in a restricted class and deprived the certain rights.

Giggles1357
Mar 23, 2012 6:31PM
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If the methodology isn't transparent to the public, credit scores shouldn't even be legal. Teachers show the formulas to get the "final grade". The whole teacher/student analogy is creepy btw. The relationship should be open and equal when it comes to data gathering. Otherwise, it gives the appearance that it is one big scam(which it is). 
Mr. Larry
Mar 23, 2012 3:16PM
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Paying for your credit score is like being raped to have someone that raped you arrested!!
thatguyagain
Mar 23, 2012 4:00PM
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These credit companies have more control over my life than Obozo. I agree, who gave them the right to sell my personal info? I smell "class action suit".
Giggles1357
Mar 23, 2012 6:47PM
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Even though I don't think they should even exist because of the lack of transparency, you asked why? Because they know the real "education" is that they use variables that would probably be considered illegal and their results are faulty. In addition they are there to serve the financial institutions not the consumers. So yeah they want to make money but they want to hide their methodology too. Consider this, companies like Facebook and Google have the best developers working for them. They still can't effectively come up with great methodologies to make money with online ads. Now think about what the financial and insurance companies claim. They have these amazing methodologies to determine scores with data gathering. Sadly the public never calls them out on it and hopes they are awarded a good "final grade" instead. I agree with what you are trying to though, good luck.
GWMAINSTREET
Mar 23, 2012 1:45PM
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The whole credit score institution is a joke.  What does my past financial history have to do with how I drive or how I work.  The lending and credit system is controlled by 1% of the population.  It is time to overhaul the whole system.  Just because I had a credit card at 18 I did not pay, it should stick with me forever.  The bank could afford to write off my small $500 balance.  We don't teach credit responsibility in schools and if your parents had bad credit it was because no one ever taught them all these unwritten and hidden rules.  It is all about GREED not about a system that works.
Credit is a waste
Mar 23, 2012 2:40PM
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Don't use banks but for the simplest of transactions. Like cashing other people stuff etc. cash out your check at payday every week leaving nothing in the account etc.

Pay cash for your things etc and your credit score wont matter. And don't say job either. if your credit score is keeping you from a job then most likely you don't have any marketable skills.

And to not sleepy about them giving it away free. Who the **** gave them the right to sell your personal information in the first place?? Probably some **** with a pea sized intellect, kinda like that displayed by your comment. Why should I have to pay to check something they never had the right to get in the first place.

Rising Waters
Mar 23, 2012 5:10PM
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I judge my credit by how many people are scrambling to give me more credit at low rates, my low insurance rates and low interest car loans.  I don't worry about credit reports.  Never have.  I always pay what I owe.  On time.  Or early.  Can't do that?  Don't go into debt.
mrlundt
Mar 23, 2012 4:41PM
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That's not fair....companies should have to give away their stuff for free.

 

You know what's not fair I need to eat. Grocery stores should give me food.

You know what else ins not fair, I can't dunk a basketball, LOWER the rims.

 

You know what isn't for---you think life should be equal for and those that build a better mouse trap should be penalized.

 

isthisreal
Mar 23, 2012 6:34PM
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Of course that would put Fair Isaac out of business.

Want a home loan? It would go back to pre-FICO days and take months to get loan approval, in most cases. Plus your interest rate would be higher, as the banks would be giving a lot of loans with limited information on how you pay your bills. Want a credit card? Plan on 20% + interest, and after a year or two you may be able to get it reduced. Pre-FICO people were complaining about having to pay high interest to cover those who did not pay their bills.

 

I do not want to go back to those days.

Rising Waters
Mar 23, 2012 5:06PM
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WahhhWahh!  It's not fair!  That evil company collecting, collating, analyzing data should have to give it away to me for free!  I'll bet they're making a profit too!  It's not fair!  WAH! WAHHH!  
NotSleepy
Mar 23, 2012 1:30PM
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I need gasoline to get to MY job in MY car. I demand the government give me free gasoline at the gas station every week. Maybe a couple gallons - just enough to commute to work. I also demand free water because water is essential to life. Since I needed that credit score to buy a house, I demand a free lawn mower because the city will give me a ticket if the grass is too long. While we're at it, I demand some free electricity to run my refrigerator to hold the food I need to stay alive. Shall I keep going on what else the government should demand companies to give away?
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