Last week I said the credit score purveyor do a very good marketing job in making something of a non-issue to most people seem like a big deal. The marketing creates artificial demand from people to buy their credit scores.
Actually their marketing is too good. It also created the demand from people to get their credit scores for free. When Ann Carrns at New York Times Bucks blog wrote about a bank selling credit score updates for $2.99 a month, she asked:
“But if the score is so important to customers, why not offer it free?”
Being important and offering it free have nothing to do with each other. Eating healthy food is important but grocery stores aren’t offering food for free. If it’s that important, you should be ready to pay for it.
The free credit score movement almost got its wish granted. The Dodd-Frank Wall Street Reform and Consumer Protection Act passed last year requires that lenders send the applicant their credit score for free if the credit application is denied or if the applicant didn’t receive the best terms.
Some are hoping because it’s too much trouble for the lenders to document their compliance with the new law, they will just take the easy way out and send the credit score to every applicant for free. That way they are always covered. The lenders also won’t have to piss off the borrowers by telling them they didn’t get the best rate.
Although I don’t care much about credit score, I must come to its defense. There are good reasons credit score isn’t free and it shouldn’t be free. No matter how dubious the value is, it shouldn’t be mandated that it be given away for free.
It’s My Score
A typical argument for free credit score is:
“It’s my score. It belongs to me. Of course it should be free.”
Not really. The credit score is a score calculated on you but it’s not yours. You didn’t do anything to produce it.
The credit bureaus gathered data from the creditors about their experience with you. The scoring companies, FICO and what not, invested time and effort in math models. They convinced lenders their models have predictive power on future performance. You did none of that. How is the credit score yours?
I Get Free Credit Reports
Another argument for free credit score is:
“I already get my credit reports for free. The credit score should be free as well.”
You get free credit reports so that you have an opportunity to correct any mistakes on the reports. If the credit score is wrong because of bad entries on the credit reports, you should correct the reports.
When the credit reports are accurate, the credit score is by definition accurate, because the score is just the result of applying a math formula to the data on the credit reports. There is nothing for you to correct on the credit score itself. Therefore it’s not necessary to give it to you for free.
Bank Already Has It
A third argument for free credit score is:
“Banks and credit card companies already have my credit score. They should just show it to me.”
It’s true banks and credit card companies buy credit score updates to monitor all borrowers. They already have your latest credit score. But sharing it with you is a different matter. Credit score vendors sell scores to the banks on specific licensing terms. They don’t have to allow the banks to share them with you. They produced the scores. They get to set the terms.
My opinion on credit score is still the same. If you pay your bills on time and you check your credit reports periodically for mistakes, don’t worry about the score. Don’t waste money on buying your score. Don’t bother signing up and canceling free trials. If you really want to know, use a service that give you a free score.
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Random Poster says
“The credit score is a score calculated on you but it’s not yours. You didn’t do anything to produce it.”
That’s not really accurate. The credit score is based on data that is generated from your actions. Without the underlying actions (produced by you), there is no data to analyze, no calculations to run, no fancy math models to create. Since the underyling inputs are, at the absolute base level, wholly produced by you, why shouldn’t you have an ownership interest in the end product?
It seems to me that your line of thought is similiar to that offered by drug companies that wish to patent genes that they have discovered, even when the genes are residing in humans that the drug company holds no ownership interest in.
Harry Sit says
Those actions you talked about are passive. You just borrowed money and paid your bills as you normally would absent of any credit bureaus or credit scoring companies. The data are gathered by the credit bureaus, from the creditors. It’s akin to me asking restaurant customers to give me an evaluation of all the restaurants they go to every month. The restaurants don’t do anything differently. They are just serving food as usual. In order to gather those evaluations and come up with a “restaurant score” I will have to give some incentives to the restaurant evaluators to make it worth their time and trouble. It’s between me and the evaluators. Restaurants didn’t help me at all. They only served food to make a profit as they normally would if I didn’t create this restaurant score business at all.
In the corporate credit rating world, the borrowers actually pay the rating agencies to get themselves rated. Here the credit bureaus are rating everybody automatically.
I don’t know enough about patenting genes, but if a drug company discovered something from their R&D investment, say that a natural plant can treat a certain disease, they should be duly rewarded for that discovery. Yes the plant has been there in nature all along but knowing how to use it for a certain purpose makes the difference.
I can see your argument that the credit score is the credit bureau’s intellectual property, and they have a right to charge for it. I am less convinced that they have a right to your credit history without your consent. The restaurant analogy is not that sound. The restaurant is in business to sell meals to the public, and evaluation, even word of mouth, is part of the business. An individual’s economic activity is not so obviously a matter of legitimate public interest, or the interest of the credit bureau. This seems more like a terms of service question with a website. If the deal offered is “you use the site, and we use the information about your usage for our business purposes”, then each individual gets at least the choice not to participate, and perhaps the choice to opt out. The credit bureaus are reporting data with no element of consent.
When credit rating agencies create ratings for businesses, the process begins with the business asking them to do that. They then negotiate a price the business will pay the agency. The business submits data to the agency for this purpose, and can end the relationship when it wants. None of this exists for the credit bureaus. Perhaps they should pay for the credit history unless they have collected it in response to a request from the individual?
Harry Sit says
@dbh – I’m sympathetic to your argument (with a small modification) that creditors don’t have a right to disclose your credit performance information to third parties (credit bureaus) without your prior consent. However, you may have indeed given your consent when you opened the account with the lender, who included “we report to credit bureaus” in the account agreement. Credit bureaus collate data received from the lenders. If you want to stop disclosure, you have to stop doing business with lenders who report to credit bureaus.
Some countries have privacy laws that prohibit lenders from reporting your information to third parties. As a result, lenders see everybody as risky because they don’t have any history to go by. They set a high interest rate to compensate for the risk. Borrowers pay a far higher price for lack of credit bureaus than they pay for their credit scores here.
Joe Morgan says
I couldn’t agree more on these points. Especially that the score itself is not that important. Do the right thing, make sure your report is accurate, and you’ll be OK. I have to laugh at people who obsess whether their score is 800 or 820. They should be trying to live within their means and not need to borrow money in the first place, instead of being controlled by a number!
Chris in Boston says
What are your thoughts on sites like:
http://www.creditkarma.com which provide completely free Vantage Scores, Transunion Scores and Insurance risk scores? All with no free trial or credit card needed to sign up?
Personally I prefer creditkarma site as it seems less intrusive that credit sesame.