Free Credit Scores for Real
House and Senate negotiators have finally agreed to language for the Dodd-Frank bill, now headed back to both chambers for approval. Of the many reforms that the bill’s passage would initiate, one change of particular interest to consumers, which is receiving little attention, is the credit score access provision.
While consumers are entitled to one free credit report per year from each of the big three agencies, there currently are no mechanisms for receiving a copy of your credit score, the number that is meant to represent credit worthiness, at no cost. The Dodd-Frank bill would allow consumers free access to their credit score if their score negatively affects them in a financial transaction or a hiring decision. In particular, the law would allow consumers to request credit score disclosures as part of receiving an adverse action or risk-based pricing notice.
This is a good start, but there is another bill that would provide even stronger protections. H.R. 2374 would amend the Fair Credit Reporting Act to make credit scores available to consumers once each year free of charge and allow consumers to see the credit score used in connection with any of the lending or credit decisions made on their behalf. This would expand access to credit scores to all transactions, rather than limiting it to those transactions in which a person was negatively affected by their score.
What makes access to a credit score at no-cost so important? Since credit scores have become vital to accessing the credit necessary to build assets, people should have easy access to their scores before they apply for a loan or credit card. Fees for accessing credit scores are a burden that falls disproportionately on lower-income families. Knowing a score beforehand can help consumers plan for the annual percentage rate (APR) they will likely be eligible for, take steps to repair their score if necessary, and avoid unnecessarily high interest rates. Freddie Mac estimated that more than 20% of people who received sub-prime loans could have qualified for less-expensive prime loans.
Access to a no-cost annual credit score is not a silver bullet. It does not address the needs of the nearly 70 million people who have no credit scores or a thin file score. Attention still needs to be paid to how to bring this population into the mainstream credit market, whether through alternative data reporting or other means. In the meantime, this is at least a step toward making the credit reporting system more accessible and transparent.
Hannah Weinberger-Divack coauthored this post.
