As the agencies who gather data on your credit records, Equifax, TransUnion, and Experian seem to many consumers to be allies in a world of deceitful practices. If so, that image has been damaged by series of fines to these supposed consumer-friendly bodies from the Consumer Financial Protection Bureau (CFPB). In January, the CFPB fined TransUnion and Equifax a total of $23 million for deceptive practices. Experian’s comeuppance came in late March, with a $3 million fine for similar transgressions.
What was behind the fines, and what are the takeaways for credit-card holders?
Your Score Is Only Part of The Picture
The rulings asserted that the three credit bureaus misled consumers about the true value of their score data. Advertising that included such phrases as “see what lenders see,” it’s argued, implied that banks, card issuers, and more will see and directly use the credit scores Equifax, TransUnion, and Experian generate.
Instead, those scores are mere ingredients in the key data used by lenders, which is most often a score, or scores, from The Fair Isaac Corp (FICO). FICO scores are prolific; there can be up to 50 of them for any one consumer, reflecting their specific record on repaying particular kinds of credit. An auto loan issuer wants to know about your car payment history, for example, while a credit card company is interested in how you manage your borrowing limits.
The upshot: The single number that Equifax, TransUnion, or Experian will provide is less important than it may seem. Think of your credit score the same way you would your health; Your physical state is more than your cholesterol. A doctor measures your blood pressure, weight, and heart rate. The numbers form one cohesive assessment of your well being. Don’t be fooled into thinking a single number from these bureaus is enough to predict your creditworthiness.
You Might Be Paying More Than You Realize
The CFPB findings also asserted that agencies unfairly charged customers. Users who enrolled in services promoted as free or costing only $1, the agency said, were charged a recurring fee – usually $16 or more per month – unless they canceled during the trial period. The CFPB said this billing structure, known as a ‘negative option,’ “was not clearly and conspicuously disclosed to consumers.” These perpetual fees could potentially add “up to almost $200 a year if [consumers] didn’t cancel their subscriptions at the end of the trial period,” according to the Washington Post.
Consumers need to understand that “free” services often convert to paid subscriptions. In some cases, “customers seeking credit reports were directed to Experian’s advertisements before they received their reports,” explains The Wall Street Journal.
New CFPB regulations now require that the bureaus get explicit consent from customers before charging these fees. Marketing practices will also become clearer with CFPB oversight.
As a consumer, ensure you know when an offer is a one-time engagement or a subscription requiring cancellation. Credit-reporting agencies are required by law to provide one free report to customers annually. The companies use this service as a hook to sell other products. As a consumer, ensure that you’re only requesting the information that’s free.
Go Beyond The Agencies
You cannot manage your credit without having the full picture. Therefore, consider other services that will include industry-specific scores (e.g. auto, mortgage, etc.). This information does come at a cost, but the value can also be considerable. Basic reports from FICO, which include these other scores, start at $19.95.
Before financing a purchase ask the lending party what specific information they consider when making a decision. Otherwise, you might be looking at a score that varies significantly from the figure they're weighing. If you're interested in keeping fees down consider balancing the free scores from TransUnion, Equifax, and Experian against one another to gauge a more holistic average. It’s worth watching the watchmen.
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