Credit Reporting and Scoring

About 200 million Americans have credit files maintained by the major reporting agencies, and the largest three agencies generate more than one billion credit reports each year.  The three largest credit reporting agencies—Experian, Equifax, and TransUnion—are often referred to as the "Big Three." 

Consumers also have several "credit scores."  The most commonly used scores, the "FICO," are generated by Fair Isaac and Company.  A FICO Score is generally between 300 and 850.  A score above 700 usually indicates a good credit risk, while scores below 600 indicate high risk.

The credit reporting industry, while massive, is error prone and its system for fixing mistakes is perfunctory at best. 

• Facts and Stats

• More about FICO Scores

• Mistakes in Credit Reports

• Sources for More Information

Credit Reporting and Scoring Facts and Stats

• A US PIRG report found that 25% of credit reports contain serious errors that could result in the denial of credit, and 79% contain mistakes of some kind.

• An NCLC report (PDF) found that credit reporting agencies have minimized the resources devoted to handling error investigations to the point that one agency pays its dispute-handling vendor in the Philippines a mere $0.57 per dispute letter.

• According to a recent survey (PDF), less than one third of Americans know that 700 is the lowest score that would qualify a consumer for a prime-rate mortgage.

• Everyone is entitled to a free copy of their report from each of the Big Three agencies once every twelve months.  The official site which provides these reports is www.annualcreditreport.com.

• Consumers often fall for ads for other sources of "free" credit reports.  These are often scams that lead consumers to sign up for costly and ineffective credit monitoring services.  The New York Times reported on one of the most popular scams in "The High Cost of a 'Free Credit Report.'"

• An analysis by Consumers Union shows that credit monitoring services are often “overrated, oversold, and overpriced.”  About 24 million customers have signed up for such services which purport to protect against identity theft.

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More About FICO Scores

The data which appears in your credit report are also used to generate "credit scores," which are widely used to determine whether – and on what terms – consumers can obtain loans (or obtain insurance, rent apartments, or get cell phone contracts). Since what’s in a consumer’s credit file at each of the credit reporting agencies differs, and each of the agencies may have different guidelines for FICO to use in computing their score, a typical consumer has three or more different FICO scores at any one time.

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Mistakes in Credit Reports

Millions of credit reports contain badly outdated information and mistakes.  US PIRG reports that one in four reports contains an error serious enough to result in the denial of credit. 

A report (PDF) by the National Consumer Law Center shows that consumers trying to fix these errors face an unresponsive, automated dispute system that conducts meaningless "investigations."  The credit reporting industry’s clients are creditors and other businesses that use its services, rather than consumers, so serving consumers fairly is a low priority.

Studies show that consumers do not understand reporting and scoring.  Consumers should also beware of credit "monitoring" services which are often not worth the cost, and of services other than www.annualcreditreport.com which claim to offer free credit reports.

Click here for information on ordering, reading and correcting your free credit report.

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More information about credit reporting

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Studies, reports, and more data about credit reporting

AFFIL is grateful to the National Consumer Law Center for their help with this page.
Last Update:  January 2009.