We Count On The Information In Our Credit Reports To Be Accurate, But What If It’s Not?

From the day we get our first credit card, we are mindful of our credit score. So much of what we do in our financial life depends on that three digit score generated by the big credit reporting agencies. We count on the information to be accurate and for our personal information to be safeguarded.

But what happens when it’s not?

The short answer is, it ain’t pretty. TransUnion and Equifax, two of the nation’s “Big Three” credit reporting agencies are currently facing fines and damages levied by the Consumer Financial Protection Bureau totaling a cool $5.5 million, and restitution damages of $17.5 million for being less-than-straight-forward with consumers.

The companies allegedly have for several years deceived consumers about the usefulness and the actual cost of credit scores they sold to consumers, and lured people into costly recurring payments for credit-related products with false promises.

Credit scores are the gold standard of measuring a borrower’s credit-worthiness. They are, in essence, numerical summaries aimed at predicting our payment behavior when using credit. Most lenders and other commercial users rely on these scores when making the decision whether to extend credit. So, our financial lives depend on these numbers being an accurate reflection of our credit history.

Check Out: How canceling a new card can hurt your credit

Here’s how TransUnion and Equifax screwed up.

Credit Reporting Models: Since 2011, TransUnion and Equifax used less-than-accurate models for reporting credit scores.  The companies employed reporting methods that are not standard in the industry, and that lenders don’t typically consider. TransUnion used a third-party model not generally used for credit decisions, and Equifax employed an in-house approach designed to be “educational,” that also is not usually accepted in the credit lending process.

In legalese, TransUnion and Equifax falsely represented that the credit scores they marketed and provided to consumers were the same scores lenders typically use to make credit decisions. In a nutshell, the companies deceived consumers about the usefulness of the scores they were providing.

Paid Subscription Programs: Both TransUnion and Equifax advertised its services for free – or for only $1. While there are plenty of ways to get free credit reports, the companies’ websites lured consumers into signing up for a free trial of seven or 30 days. Unless consumers cancelled during the trial, after the last day consumers were automatically charged for a “subscription program.” This translated into charges of $16 or more per month for access to their credit scores. The CFPB found that no part of this process was clearly and conspicuously disclosed, as required by law.

Exposing Consumers to Advertisements: This was a problem for Equifax, and a bullet that TransUnion dodged.  Equifax, as a credit reporting agency, is required by law to provide a free credit report once a year and to do so on the Annual Credit Report website.  From 2011 to January 2014, consumers who opted for a free report through Equifax were forced to view advertisements before receiving a score, in violation of the Fair Credit Reporting Act. Oops.

TransUnion’s transgressions have affected approximately 700,000 consumers. It is unclear how many consumers were affected by Equifax’s bad behavior.

If you think you were affected, keep an eye on your mailbox. Those that were affected by the companies’ actions will receive notification by mail from either TransUnion or Equifax (or both). After that, the companies have 60 days to make a plan for how they intend to pay consumers the restitution. Then consumers can expect to receive specifics on how the payback plan will work.

Check Out: Multiple monthly card payments can boost credit scores 

Cover Image: Jeramey Lende / Shutterstock, Inc.

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