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Consumer Understanding of Credit Bureau Data May Be Flawed

NEW YORK, NY:  Over the years, American consumers have gained greater transparency on credit reporting. For example, in 2003, The Fair Credit Reporting Act (FCRA) was amended to require that each of the nationwide credit reporting companies provide consumers with one free copy of their credit report, upon request, once every 12 months. Previously, access was available for a fee unless the consumer had already been denied credit based upon credit bureau information.

According to recent consumer research published in Cardbeat®, a syndicated research report published by Auriemma Group, most U.S. consumers have a general awareness of credit bureau information (including their credit reports). Many consumers also understand the impact information has on their ability to obtain credit at a reasonable price. Cardbeat research shows that half (50%) of consumers are generally familiar with credit bureaus, with a higher percentage familiar when consumers have children in the household (66%), or are affluent, defined as consumers with $100,000 or more in assets (61%). Since the FCRA was amended to provide free consumer access to their credit information, the incidence of consumers who have reviewed their credit reports has grown from slightly less than half (49%) to more than three in five (62%).

Consumers consider their credit bureau information and credit score to be of nearly equal importance in terms of their ability to get the credit they need at a reasonable price (79% and 82%, respectively). However, more than one-third (34%) of consumers feel the cost associated with accessing their credit bureau information is not reasonable, when, in fact, it should be accessible for free.

Marianne Berry, Managing Director of the Payment Insights practice at Auriemma says, “The discrepancy between actual cost and perceived cost may be explained by possible consumer confusion.” For example, services that provide credit monitoring often charge fees. The Federal Trade Commission acknowledges that imposter websites claiming to offer “free credit reports,” “free credit scores,” or “free credit monitoring” have created consumer confusion. (Although the CARD Act did mandate new disclosures in the advertising of such services.)

Another area of confusion is the fact that credit reporting is not the same as credit scores. Credit scores are not routinely provided for free. Further, there are different credit scores available (widely-used credit scores are those developed by FICO, and another called VantageScore created in collaboration with the three major credit bureaus).

Financial institutions may have a role in helping to educate consumers. For example, banks’ own websites can potentially direct consumers to the official ‘annualcreditreport.com’ website for a free copy of their credit reports. Also, some credit cards are now offering consumers with complimentary access to their FICO credit scores. Ms. Berry adds, “While the short-term financial benefit of providing such consumer education may be difficult to quantify, gaining consumer trust may pay longer-term dividends by establishing them as a provider of choice.”

About Auriemma Consulting Group

Auriemma is a boutique management consulting firm with specialized focus on the Payments and Lending space. We deliver actionable solutions and insights that add value to our clients’ business activities across a broad set of industry topics and disciplines. For more information, call 212-323-7000.

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