Why credit scores should be free for consumers
Through partnerships with creditors (banks, credit unions, and other lenders), TransUnion, Equifax and Experian collect a lot of information on consumers such as yourself. They know whether you forgot to pay your credit card bills, obtained a car loan, pay an additional $1,000 on your mortgage every year, and so forth.
Essentially, the big three credit bureaus know some pretty intimate details about your financial life, and those details are worth a lot to them. Without your data, their business relationships would crumble. Yet, when you want to check your credit report, you typically have to pay them. What gives?
How credit bureaus make money
The credit reporting business looks a little wonky at first glance. Banks, credit unions and other lenders provide consumer credit information to the bureaus, which sell that data back to them after analyzing it.
Why don't banks just analyze your credit data themselves? TransUnion, Equifax and Experian have invested quite a bit in their analytical tools which calculate the risk of lending to you or other consumers. For lenders, it make sense to outsource credit report development to companies that specializing in that area. By doing so, they can also focus more on putting together innovative lending products and services.
Long story short: Every time a bank pulls your credit report, it pays one of the three credit bureaus to obtain it. For TransUnion, Equifax and Experian, this is big business. Credit report sales don't even account for all of the typical credit bureau's revenue: They also provide decision analytics tools and marketing services that show lenders which demographics to target. All of this business is built on the data they collect from you.
Credit reports aren't always accurate
One could make the argument that the credit reports TransUnion, Equifax and Experian develop help consumers obtain wealth. For example, if a credit union gives you an auto loan because of a good credit score, you have the money needed to buy a new car.
But what if your credit score isn't the best? Even worse, what if the information in your credit report is incorrect? This means you could be denied a loan even though your credit score doesn't accurately reflect your loan repayment habits. Why should you pay for a credit report that doesn't even get your address right?
Credit report inaccuracies aren't uncommon either. In addition, credit bureaus do a pretty poor job of correcting errors when you bring them to their attention. In 2012, the Federal Trade Commission asked consumers whether they had any incorrect data in their credit reports. Three years later, they caught up with those same respondents and found 121 had at least one unresolved credit report dispute from 2012. That meant it took credit bureaus more than three years to address consumers' credit report complaints.
Between the data they collect on you and the revenue they generate through their business relationships, credit bureaus shouldn't make you pay for credit reports.