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Consumer Watchdog Calls for Free Credit Scores

April 1, 2014
Credit Cards
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According to the Consumer Financial Protection Bureau, fewer than 1 in 5 Americans actually looks at his or her credit report. This is alarming, considering that the contents of your credit report determine everything from your credit card interest rates to whether or not you get approved for a loan.

The good news is that the CFPB is urging major credit card companies to offer credit scores to their customers free of charge. It believes that free access to credit scores could encourage Americans to check their reports more often.

Why should your credit score be free?

Your credit score allows you to see the impact of your good and bad credit behavior and gauge financial decisions. If you find that anything is off about your credit score, you can review your credit report to understand why. For example, if you find that you have a low score when you know that you have good credit history, you might be prompted to check your reports. If you find any mistakes in your report, you can take steps to clear your name and boost your score.

Credit reporting mistakes may be more common than you think. In a recent report, the CFPB found that people’s most frequent credit reporting complaint was that incorrect information appeared on their credit reports. The Federal Trade Commission found that 1 in 4 consumers found errors on their credit reports that could hurt their credit scores.

Discrepancies in credit scores could be the result of simple errors or they could result from something more serious, like identity theft. According to the Bureau of Justice Statistics, 16.6 million people were affected by identity theft in 2012. If you notice that you have a lower score than you expected, it could tip you off to fraudulent spending under your name.

Not only will access to free credit scores make it easier for you to catch errors and prevent fraud, as you develop sounder credit habits and clear up mistakes on your credit report, it will also allow you to monitor your score to ensure you meet your credit score goals. Your goals will vary depending on factors such as whether you want to buy a new home or how many student loans you need. In any case, it’s helpful to know your credit standing before you apply for credit cards, loans or housing rental applications, since your score is a major factor in determining approval and interest rates.

Changes for consumers and companies

Some companies are already on board with the CFPB’s idea. For example, certain credit card providers, including Barclays, First National Bank and Discover, have started offering their cardholders free credit score monitoring. Via its website, Discover says that providing credit scores will help customers “stay on top of  (their) credit and avoid surprises.” Others, like the Consumer Bankers Association, aren’t sure credit scores will be the most helpful, digestible information for consumers.

The CBA issued a lukewarm response to the CFPB’s request for free credit scores. In its statement, the CBA acknowledged the importance of credit scores, but emphasized the greater importance of overall financial literacy. The association makes a good point. Credit scores are somewhat useless if consumers don’t know what goes into calculating them. However, the CFPB suggests that consumers could use their free credit scores as a first step toward better financial literacy and health.

It remains to be seen if other companies will heed the CFPB’s request or whether doing so will lead customers to review their credit reports more frequently.

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