Free Credit Report Offers Examined

Up until the end of last year it seemed like you could not turn on your television without seeing and hearing the free credit report jingle. Those merry men dressed as pirates lyrically painting a picture of why we should all check our credit reports. Besides, it was free, right? It depends on your personal definition of “free,” which for the advertisers meant free as long as you don’t mind placing your foot in a proverbial snare so they can shake money out of you later. The Federal Trade Commission noticed the advertising, even going as far as mocking them with its own jingle at http://www.ftc.gov/multimedia/video/credit/reports/apartment.shtm.

Then the FTC brought down the hammer, full disclosure of where consumers could obtain their federally mandated credit report. Too many consumers did not understand that they could go to www.annualcreditreport.com for a free credit report with no-strings attached (no credit score though, the law does not require it currently). The level of advertising for commercially generated free reports was enormous; the most well known free credit report site reportedly spent $100 million annually on advertising. How much free stuff can you give away with an advertising budget of $100 million? As it turns out, only so much, people ended up with credit card charges they did not want because to get the free credit report they had to sign-up for a 90 day or so free trial of identity theft protection or credit monitoring. If they did not cancel by the 90th day they would be charged, the complaints flowed like an angry volcano.

Per the FTC enacted disclosure any website offering free credit reports must now place at the top of the page:

THIS NOTICE IS REQUIRED BY LAW. Read more at FTC.GOV.
You have the right to a free credit report from AnnualCreditReport.com
or 877-322-8228, the ONLY authorized source under federal law.

The Web site disclosure must include a clickable button stating “Take me to the authorized source” and clickable links to AnnualCreditReport.com and FTC.GOV.

Disclosures are required for radio and television advertising as well, which went into effect on September 1, 2010. This is why we do not see or hear as many of the advertisements. However, there are a thousand ways to skirt regulation, so the new thing is to offer a free credit score instead of a free report. Fortunately consumers are catching on to the unsavory nature of these schemes. Even the free credit score is a ruse in the sense that it generally is not even the score lenders use for underwriting, just a fictitious self-created formula to get money out of unsuspecting consumers.

If your New Year resolution was to improve yourself this year, go to www.annualcreditreport.com right now and print off a copy of your credit report for your records.

What About My Credit?

A few weeks ago I was invited to Las Vegas to speak about credit at the “Resources for Recovery” event presented by the Nevada Foreclosure Prevention Task Force, Federal Reserve Bank of San Francisco, and Office of the Comptroller of the Currency. It was a training event for the housing counselors who deal on a daily basis with people who have lost or are in the process of losing their home. Many of these folks assist with the national Homeowner’s HOPE Hotline (888-995-HOPE), so I wanted to make the most of my one hour presentation because they needed a plan of action for people facing financial turmoil.

If purchasing a home is the largest single purchase an individual will make, facing the prospect of losing a home is likely the most stressful and agonizing financial situation a person is likely to encounter. The nice thing about this blog is that I am not limited to a one hour presentation; this is a weekly engagement at the minimum.

Here are some initial thoughts when it comes to credit and losing a home:

• What is the likelihood I will be sued? This is the number one critical item to wrap your head around first. I always say worry about you liability first and your credit second. I am going to refer to my fellow blogger Dax Watson to focus on this area of liability.

• The silver lining: nothing bad on the credit report will last forever. The Fair Credit Reporting Act limits how long derogatory information can remain on the credit report. No matter what the advertisements on the radio and television may say, nothing is forever, although scenarios vary and some are more extreme than others. It may be necessary to look at bankruptcy as an option, although in some cases bankruptcy may not be necessary. The “B” word is not favorable to most consumers, although the reality is that it is an efficient means to cleaning up the problems of financial disarray in a very specific and legal manner without leaving the door open to future liability from present circumstances.

• Save your credit reports forever so that you have a record of dates as to when negative accounts should be coming off of the credit report. Do not assume you should save financial documents for only 7 years; we have that drilled into our heads because of IRS audit time frames. You never know when past debt issues will be resurrected and you will need to defend yourself with documentation. Preferably a consumer will have printed physical copies of their credit report before, during, and after the housing crisis.

• Review the credit report to see how your accounts are reporting, is everything correct? Are dates and balances correct? There are numerous websites offering free credit reports, but they come with a catch. There is only one government mandated website available to U.S. consumers for a free “no strings attached” credit report (www.annualcreditreport.com). This site does not include a credit score with the credit report, long story short, that is how the legislation went through in 2005 when the Fair Credit Reporting Act was changed to allow the free report. It is worth noting that the three major credit bureaus (Experian, Equifax, and TransUnion) will sell you a credit score, however, if it is called VantageScore do not waste your money. The only score that matters in the mortgage lending industry is the FICO score created by Fair Isaac. In 1995 Fannie Mae approved the FICO score to be used in approving mortgages; no other score has been approved for the mortgage industry. Paying for the VantageScore, which is a product of the credit bureaus, is not only a waste of money, but it can give you an incorrect assessment of your credit score. The VantageScore can be 100+ points higher than the FICO score, so you may think you have a 700 score, but a lender may pull a 600 score when they pull the FICO score. You can purchase your FICO score through the credit bureaus or on www.myfico.com (note: currently Experian and FICO are entangled in a legal battle and therefore a consumer will not be able to purchase the Experian FICO score until the dispute is resolved, only a lender or third-party subscriber has access to this score currently). Your best method to getting a FICO score is to have your lender pull it, then there is no question it is the right one. When in the rebuilding process knowing the credit score is not that important, focus on the contents of the credit report and making sure the information is correct.

To summarize:

1. Worry about liability first
2. Worry about credit second
3. Print out a physical copy of your credit report and file it away with you important documents, save it forever, debt sometimes has a way of creeping back whether legally or not. I have way more to touch on this subject in a later post.
4. Review and understand the contents of your credit report. I have several future posts regarding this subject.

Until next time, focus on the present and future, do not dwell on the past. One of my favorite authors, Larry Winget, says:

“Focus on what you need to do right now. Too much time is spent worrying about what happened in the past or fretting about what might happen in the future. The past is just that: passed. It has passed you by and is over, so move on. The future probably isn’t going to be as bad as you imagine it to be. Focus on the present. It is all you have really got to work with”.