In 2003 the Fair Credit Reporting Act (FCRA) was amended by what’s referred to as the FACT Act—more formally known as the Fair and Accurate Credit Transactions Act of 2003 or FACTA. Amending the Fair Credit Reporting isn’t anything new. The original law was enacted in 1970 and has been amended at least 20 times since then.
Most people don’t know much about FCRA, but I would guess that many of you are familiar with at least one of its more well-known provisions. For example, thanks to the FCRA, each year we’re entitled to free copies of our credit reports from the credit reporting agencies.
The report that we’re entitled to is the same report that the credit reporting agencies make available for sale to lenders, with some notable exceptions. When the agencies sell a credit report to a lender, that report does not include soft inquiries, employment inquiries, insurance inquiries or utility inquiries. Of course, all of those inquiries, and more, are provided to you when you request a copy of your credit reports.
I was working for FICO when FACTA was being contemplated. At the time, it was vigorously debated in the court of public opinion. The primary issue was whether or not your credit score would—or should—be disclosed once every twelve months along with your free credit reports.
Consumer groups strongly supported the requirement to include a score with the free credit report. I remember the industry taking a more cautious approach to the issue, and understandably so. One of the concerns was that credit scores are not actually a part of your consumer credit report. Credit scores are simply an ancillary product sold along with your credit reports.
Like the inquiry example above, the credit reports sold to lenders don’t necessarily have the same score information as the reports provided to consumers. Moreover, credit reports can be sold to lenders without any credit score information. In fact, credit reports can be sold without credit scores, but credit scores cannot be sold without a credit report.
I’m okay with not including a free score with your free credit reports. The issue with giving away a free score with your credit report is one of context. If I told you that your score at Experian was a 700, what exactly does that mean? What is a good credit score, a bad score, or an average score?
Back when the free credit report rule was being rolled out there was one generally recognized credit score in the lender market—your FICO® credit score. In 2003 when FACTA was signed by then President George W. Bush, there were more credit scores on the market than just the FICO brand, but the perception was that FICO was the one and only score that mattered.
Today FICO is still the industry standard credit score, but you now have a viable player in the credit bureau risk score market, the VantageScore Credit Score. While the VantageScore is still a distant second to the FICO score, its market share has grown over time. Does a free score with a free report makes any more sense than it did in 2003? What score would be given to consumers? It would be unlikely that any score given to the consumer would be the same score sold to lenders. Any score given to the consumer would likely change less than 30 days after it has been disclosed, when reports go through a full set of updates from lenders.
Moreover, many consumers have seen their actual credit scores thanks to the Dodd Frank Wall Street Reform and Consumer Protection Act. That law requires any lender that uses your credit score to deny or adversely approve an application for credit to proactively give consumers that score as part of the adverse action letter.
The Dodd Frank rule means you will get the actual score the lender used to base their decision. Free credit reports, and any free scores that would have been a part of those free reports, are only sent to you reactively when you ask for a copy.
The post Ask the Expert: Are Credit Scores Part of Your Credit Report? appeared first on Credit Sesame.