Credit scores have become increasingly important in our lives, whether we like it or not and their importance and impact is almost certainly going to expand not diminish.
The Federal Trade Commission just recently presented a report to the U.S. House Subcommittee on Financial Institutions and Consumer Credit of the Committee on Financial Services regarding actions by the FTC that cover the accuracy of consumers’ credit reports, preventing identity theft, and giving consumers a better understanding of their credit scores and what they mean. A press release provided by the FTC stated that, “Because credit scores are important to understanding the rates consumers pay for credit cards, mortgages, auto loans, and insurance, Congress wrote into the FACT Act a consumer’s right to purchase a credit score, and a requirement that certain mortgage lenders provide a free score to home loan applicants.”
The prepared testimony covered actions taken by the FTC that included the agency’s completion of rule making to ensure that consumers have access to free annual credit reports and understand that right; a rule making to enhance consumers’ rights to dispute errors in their credit reports by the credit reporting agencies and the furnishers of the data; and a study on the use of credit scores regarding pricing of policies in the automobile insurance industry.
The foundation for the testimony is grounded in The FACT Act which amended the FCRA. The FACT Act and the FCRA is the federal law that governs the operation of the nation’s consumer reporting system. The FCRA was instituted to regulate the practices of consumer reporting agencies and the furnishers of the data to the consumer reporting agencies as well as the users of the credit reports prepared by the consumer reporting agencies for activities such as extending credit. The FTC is the primary government agency responsible for enforcing and monitor activity associated with The Fact Act and FCRA which means the FTC is the primary agency governing credit reports and credit scores.
An interesting note in the testimony covers the FTC’s understanding of the importance of credit utilization figures in calculating credit scores. For example, the guidelines state that when furnishers report an outstanding balance on a credit account, they should also report the consumer’s credit limit. This is because the failure to include a credit limit can cause credit evaluators to inaccurately estimate how much available credit a consumer is using, which is an important factor in assessing creditworthiness.
As part of the report The Commission noted that, “with sufficient knowledge about the score and what it means, consumers may use that information as a valuable shopping
tool.”
The conclusion from this report is that the FTC is watching the credit score market to ensure that the market remains fair and competitive and will continue to be a vital part of our lives.