We Deserve a Better Credit Reporting System

In some ways, the U.S. credit reporting system has improved. Credit freezes, which lock our credit information to deter identity theft, are now free and fast. We have free weekly access to our credit reports, courtesy of the credit bureaus Equifax, Experian and TransUnion, until April 20, 2022. Free credit scores provided by banks, credit card issuers and other companies allow us to easily monitor for signs of fraud and other problems.

Unfortunately, our credit information still isn’t as accurate, easy to obtain or secure as it needs to be. These failures mean Congress and regulators need to step in.

Errors abound in credit reports

A 2012 study by the Federal Trade Commission found that 26% of consumers had an error on at least one of their credit reports, while 5% reported inaccuracies serious enough to potentially trigger higher interest rates or insurance premiums.

Nine years later, accuracy is still an issue. Earlier this year, Consumer Reports recruited nearly 6,000 volunteers to check their reports. The results: 34% found at least one error or account they didn’t recognize. (Unlike the longer-term FTC study, the Consumer Reports effort was not a representative sample of the population, says Syed Ejaz, a policy analyst and author of the Consumer Reports study.)

There simply aren’t enough incentives for credit bureaus to get things right. Their primary customers are financial institutions that can profit if someone who’s creditworthy gets charged a higher rate because of a mistake, says independent journalist Bob Sullivan, author of “Your Evil Twin: Behind the Identity Theft Epidemic.”

“We say it all the time, but I feel like it’s never said enough: We are not their customers. Banks are their customers,” Sullivan says.

Because business interests dwarf consumers’ concerns, the government needs to step in. The FTC and the Consumer Financial Protection Bureau should establish stronger accuracy regulations and enforce the ones already on the books, Ejaz says.

Credit bureaus profit from consumer confusion

Search for “free credit report,” “annual credit report” or even “AnnualCreditReport.com.” The first results are likely to be ads for other sites that shill credit monitoring. The real site is often halfway down the page, with no indication that it’s the official, federally mandated place to get free credit reports.

People are understandably confused when they click on the other links and are asked for a credit card — often after they’ve input sensitive information, including their Social Security number and birthdate. (The real site doesn’t require a credit card.) They’re even more dismayed when their supposedly free credit reports turn into a recurring subscription that could cost $20 to $40 a month.

The real site should be the first search result for keywords related to free credit reports. Also, any company buying ads for these keywords should be required to have a prominent button saying something like, “Looking for AnnualCreditReport.com? Click here” with a link to the correct site. The search engines, credit bureaus and other companies selling credit monitoring are unlikely to do this on their own, so lawmakers need to act.

While we’re at it, let’s ditch the idea that access to our credit reports should be only once a year, or whatever cadence the bureaus decree. It’s our data, typically collected without our permission and with no way to opt out. If the credit bureaus won’t expand our access, Congress should.

Identity ‘verification’ systems block the wrong people

More than one out of 10 people in the Consumer Reports study said it was “difficult” or “very difficult” to get their credit reports, often because they couldn’t answer the bureaus’ identity verification questions.

You know who doesn’t have trouble with those questions? Identity thieves. They use information culled from database breaches, such as the massive one at Equifax that exposed sensitive financial data of most adult Americans, to access people’s credit reports with relative ease.

“You don't remember who holds your mortgage because it’s been sold five times. But a criminal has got all the information right in front of them,” Sullivan says.

Sullivan has some sympathy for the credit bureaus. Finding the right balance between security and convenience can be tough.

One solution is to make the information in credit reports, primarily Social Security numbers, less valuable. These numbers were meant to track our earnings history, not to be an all-purpose identifier. Stolen Social Security numbers allow criminals to open fraudulent credit accounts, steal tax refunds, get medical care using someone else’s insurance and even pose as someone else if they get arrested. Other countries have separate identification systems for different uses; so should we.

Another, more dramatic but perhaps necessary reform suggested by Consumer Reports: Credit reports should be frozen by default, which means consumers would have to consent before their information could be shared.

You don’t have to wait for government reform, of course. You can freeze your credit reports for free right now. “A credit freeze can put the control of the credit report in the consumer’s hands,” Ejaz says.