It's no exaggeration to say your credit score can change your life. This single number can determine whether you 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.com. 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.
Credit reports and credit scores
The reason we have free credit reports through annualcreditreport.com 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. 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....
1. You're being charged for a number based on your information
From your medical history to your driving record, you have the right to review information compiled about you. 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 score falls into this category.
Today, private companies like FICO credit score creator Fair Isaac and the big three credit reporting agencies (CRAs) - TransUnion, Equifax, and Experian - charge whatever they choose for something that I'd argue is already yours.
2. 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 report. Like the formula for Coca-Cola, the way they come 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.
3. 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, CreditKarma 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.
Why is there all this up-sell and confusion? Simple. Credit scores are super-important, and they cost money.
4. 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 last 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.
5. Free scores and free reports allow us to be smarter with our credit
I recently wrote a post called Should You Pay for Credit Monitoring? In that story, I quoted Lynnette Khalfani-Cox, a personal finance author who supports the idea of paying for a monthly credit monitoring program so you 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 why should people - especially those least able to afford it - have to pay for that education? 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.
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.