On the Money: A look at credit reports, and how they can be used against you

Credit reports: Who’s looking at yours? And why?

NEW YORK — Now that it will be easier to find your free credit report, you may be curious about who else can see it and how it can be used.

Starting Friday, a new Federal Trade Commission rule will require Web sites advertising free reports to direct consumers to the government-approved www.annualcreditreport.com. TV and radio ads must do the same starting Sept. 1.

The problem is that these ads typically don’t disclose that the advertised free reports are part of a package of services that can cost as much as $14.95 a month. Consumers may not realize they can get free reports with no strings attached.

Once a report is in hand, however, it only raises a slew of other questions. Here’s what you need to know about credit reports and scores.

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THERE’S MORE THAN ONE FREEBIE A YEAR

Let’s start by clarifying when you can get free credit reports.

You’re entitled to a free copy every year from each of the credit reporting agencies — Equifax, Experian and TransUnion. Off the bat, that means you get three free reports a year.

On top of that, you can request free reports if you’re the victim of identity fraud or unemployed and looking for work. In the latter case, the idea is that you should know what’s on your report in case a potential employer wants to pull it. You’re also entitled to free copies if you think your report has errors or if it’s ever used against you.

So if a bank turns you down for a loan based on a report, it’s required to disclose where it got the report so you can request a copy.

Reports from the three agencies should contain pretty much the same information, but differences can arise when lenders don’t provide data to all three.

And despite the official-sounding names, credit reporting agencies, also known as credit bureaus, are for-profit companies.

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KNOW WHO CAN PULL YOUR REPORT

Only banks, debt collectors, landlords or those with a valid interest can pull credit reports.

“Curiosity is not a permissible purpose,” said Rebecca Kuehn of the Federal Trade Commission. “You can’t just pull a report, not even on your husband.”

Prospective employers also need to get written consent to run checks on job applicants. Hawaii and Washington ban the practice in most cases, however, and lawmakers in about a dozen states are debating whether to do the same.

The thinking is that companies shouldn’t be able to use a person’s credit history to make hiring decisions, especially at a time when so many are struggling financially.

That said, credit checks are typically only used for filling positions with access to sensitive financial information, said Mike Aitken of the Society for Human Resource Management. Even then, he said companies mainly want to see that there aren’t any outstanding judgments or collections.

Credit reports sent to employers also don’t include a date of birth or the names of spouses on joint accounts, since employers can’t discriminate based on age or marital status.

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A CREDIT SCORE DOESN’T DEFINE YOU — SEVERAL DO

By now, most people understand that credit reports are the foundation for credit scores. What you may not realize is that a person can have multiple scores.

A company called FICO develops the most widely used scores, but they’re not the only ones on the market. VantageScore has gained popularity and all three credit bureaus now sell both to lenders.

The version you’ll get depends on the credit bureau you go to.

TransUnion sells both to consumers. But Equifax only sells FICO scores, which range from 300 to 850. Experian sells VantageScores, which range from 501 to 990.

In case that isn’t complicated enough, the FICO scores you get from credit bureaus can differ for a couple reasons. The first is that there may be slight differences in the credit reports each bureau has for you. Additionally, FICO develops a specific formula for each credit bureau. In most cases, the differences shouldn’t amount to more than a few points, said Craig Watts, a FICO spokesman.

Then there are so-called educational scores, such as Experian’s PLUS score. These are sometimes called “Fako” scores because they’re sold to consumers, but lenders don’t use them.

All that said, keep in mind that the basis for any credit score is a credit report. So one score should give you a good idea of where you stand with the others.

Credit scores aren’t free, however. You can buy them from a credit bureau or from MyFico.com for $15.95.

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THERE COULD BE OTHER REPORTS ON YOU

Credit reports are the most widely known, but they’re not the only information available on consumers.

For example, banks and lenders are increasingly running additional checks on loan applicants, said Teresa Grove, a spokeswoman for Kroll Factual Data, a screening company.

“It used to be people could qualify for large transactions based on a credit score,” she said. “Now more lenders want income verification too.”

Other consumer reports provide records on check fraud, driving violations and rental histories. As long as there’s a valid interest — say a landlord who wants to check an applicant’s rental records — your permission isn’t needed for those reports to be pulled.

Prospective employers, however, need permission to obtain any type of consumer report on a job applicant.

For example, it’s not uncommon for companies to run background screenings on prospective hires to check for criminal histories. For a high-level position, a company might also request permission to verify past employment, salary or education, Grove said.

As with credit reports, companies are required to disclose if a consumer report was the basis for denying you a job, loan or other service.

And if so, you’re entitled to a free copy of that report.

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If you have a consumer question or comment, e-mail Candice Choi at cchoi(at)ap.org.

(This version CORRECTS Corrects range for FICO scores in graf 26 to 300, sted 350)