Free Credit Report and Fico Score

The report shows that the information that supports credit ratings by credit agencies often led to significant mistakes in credit reporting that are hard for customers to rectify. It may affect the veracity of a consumer's credit exposure and credit standing. FTC's report was prepared under the Fair and Accurate Credit Transactions (FACT) Act 2003, which obliges the FTC to carry out a survey of the precision of credit ratings and to report its results to Congress every two years, as the FTC has done since 2004.

Recent reporting (the fifth in the series) has focused on consumers' capacity to find and rectify mistakes in their credit reporting. Every credit report provides a synopsis of a consumer's credit record, which includes an overall rating awarded on the basis of that record. Fair Isaac Corporation's "FICO" score, which is used by all three large rating agencies, is the most commonly used score.

FICO score, which is a measure of a consumer's level of credit exposure on the basis of the probability that the credit obligation will be met, ranges from 300 to 850; the higher the score, the lower the exposure. FICO score includes credit cards currently used and used, past credit cards used and payments, credit and mortgage transactions, official record of bankruptcies, enforcement and similar procedures, and outstanding debt.

Every times a user applies for credit, such as the application for a credit or debit card recorded on the score. Length of credit histories is also taken into account. Some 30,000 information resources are available from banks, insurers, government authorities, lenders and debt collectors (collectively referred to as "data providers").

FTC commissioned FTC to prepare the February 11 survey for FTC as well as consumer, rating agency and Fair Isaac Corporation. The FTC conducted its survey by selecting at random 1,001 respondents from consumer credit history surveys conducted by the three NRAs. Respondents were asked to check their credit report for correctness and to help them identify mistakes, a skilled investigator was provided.

In identifying an error, the respondent was asked to contest any significant error - i.e. an error that is so serious that it affects the creditworthiness of the customer - under the Fair Credit Reporting Act (FCRA) Disputes Settlement Understanding. A preliminary FICO score was given to the respondents when the complaint was initiated and new credit ratings and credit ratings were given when the settlement procedure was completed.

Then the FTC used the preliminary score, the new report and the new score for each competitor to assess the impact of the mistakes (actual and potential) on the competitor's credit. FTC found that 1 in 4 users (262 participants) had found a significant defect in at least one of its three credit statements.

Mistakes in the "header information" (e.g. address, date, employment) are not regarded as significant because this information is not used to determine the creditworthiness of a user. Each of these users challenging these mistakes, but only 1 out of 5 of them (206 participants) got a kind of credit report amendment. Out of these 206 users, credit rating agencies rectified all significant mistakes in the 97 users' report.

In 109 of them, credit rating agencies made corrections to only some of the mistakes found, and in 56 the credit rating agencies made no corrections. At the time when the credit rating agencies did not rectify the mistakes found, the credit rating agencies notified the 56 respondents that the transmitting third parties had contested the presence of an mismatch.

According to the survey, the most frequent type of significant error relates to customer account or collection. There are other categories of significant error, such as double entry, enquiries and'derogatory official records' (e.g. enforcement orders, bankruptcy, judgments/tax liens), which, as taken into account in creditworthiness, can adversely impact a consumer's ability to obtain credit and insure.

Once the rating agencies had rectified the major mistakes that had been checked and prepared credit ratings that had been reviewed, more than one in ten respondents was given a modified credit rating. For those who receive a modified score, the difference was less than 25 points for the plural, but more than 25 points for one in 20 points.

Only a small percentage - only 1 out of 250 - experienced a more than 100 point increase in their score. As the FTC implemented the revised score information at automatic credit levels, they found that 16. Four per cent of the report included changes that were sufficiently large to alter the consumer's credit level, indicating that some customers would have obtained more favourable credit conditions (including credit authorisation if a credit had been refused) if their credit report had been free of the uncertainties revealed by the report.

While the FTC report does not highlight this, it is certainly possible that there are mistakes in the credit statements which are favourable to customers and which remain inaccurate. A strong sense of responsibility on the part of the public cannot necessarily result in the rectification of these mistakes, as the single user has an obvious motivation to remain silent about mistakes in his favour.

Whilst this report concentrated on the relation between CRA and consumers, the FTC also briefly addressed suppliers of information. However, not all mistakes can be attributed to the providers of the information, as the providers of the information can supply accurate information which is then incorrectly handled by the credit rating agency. However, the FTC has recognised that there are some flaws in the information gathered and provided by providers and the FACT Act has been partially conceived to establish mechanism to make sure that providers examine any controversial information and rectify any flaws they find.

Information resources must fulfil this obligation, whether the call for corrections comes from the CRA or directly from the customer. FTC's report is the definitive intermediate report in the range prescribed by the FACT Act. Next report due in 2014 will be the FTC's closing report.

The full text of the recently published report can be found here.