F is for Free Credit Score
Personal Finance from A to Z
Eileen St. Pierre, The Everyday Financial Planner
It seems everyone is starting to hitch a ride on the free credit score bandwagon. Websites like CreditKarma and Credit.com promise that you do not need to provide a credit card number to get your free credit score (you still need to provide other personal information). The FINRA Investor Education Center provides free credit scores and analysis tools to active duty servicemembers and their spouses. Discover now includes my TransUnion credit score on my monthly statement.
On February 27, The Consumer Financial Protection Bureau (CFPB) called on the nation’s top credit card companies to make credit scores and related content freely available to customers. So it’s probably not a coincidence that Discover is now providing free credit scores.
Here are what I believe are the advantages and disadvantages of providing free credit scores:
- Increases consumer awareness of the importance of their credit history – To be honest, many people still don’t understand what their credit score means.
- Makes it easier to spot problems – A dramatic change in their credit scores should cause consumers to ask why.
- Helps consumers make more informed financing decisions – Hopefully they will set more realistic expectations on what they can afford.
- Consumers may focus too much on one number. As a former college professor, I used to get so frustrated at students who just focused on their final grade, not the knowledge gained from the class.
- May lead to less people pulling their credit reports each year – Once people know the answer, what’s the point in asking the question?
- As long as the credit score appears good to them, they may not have the incentive to improve their financial behavior. A soldier once told me that he honestly didn’t care what was on his credit report as long as the bank kept giving him loans.
According to the CFPB, the three credit reporting agencies (Equifax, Experian, and TransUnion) maintain files on over 200 million consumers. Fewer than 20% of Americans check their credit report in a given year. I would like to think that easier access would cause consumers to care more about their credit history. It just isn’t that simple.
Visit my Debt Management page for more information.