The Hidden Costs of Bogus “Free” Credit Reports

This report examines Web sites that offer consumers paid access to their credit reports in combination with credit scores, credit monitoring, and/or identity theft insurance. These sites are alternatives to annualcreditreport.com, created as a result of the Fair and Accurate Credit Transaction Act of 2003 (FACTA), which entitles consumers to obtain, once a year, a free copy of their credit reports from each of the three major credit reporting bureaus–Equifax, Experian, and Transunion. The “alternative” sites to annualcreditreport.com market themselves aggressively to consumers. Consumers who knowingly use the alternative sites as an adjunct to annualcreditreport.com may find their services valuable. However, consumers using the alternative sites because of confusion about annualcreditreport.com and its alternatives may end up paying needlessly for something they are entitled by law to receive for free, or paying more than necessary for credit scores.

Based on an analysis of 58 offers made on 24 alternative sites, we conclude that the enticement of free credit reports and free credit scores is an integral part of the marketing of credit-related services. The most common offer (57% of the 58 offers analyzed) provides one or more free credit reports and one or more free credit scores with the purchase of a credit monitoring service. The second most common offer (15% of the remaining) involves access to a free credit scores with the purchase of three credit reports. Some of these uses of the term “free” may be inconsistent with the regulatory guidelines of the Federal Trade Commission and the self-regulatory standards of the Better Business Bureau.

While there appear to be an abundance of Web sites offering credit reports for free, or as part of a multi-service offer that includes something for free, the industry is far more concentrated than it first appears. Of the 24 sites analyzed, nine were owned by or closely connected to Transunion and eight were owned by or otherwise closely connected to Experian.

Many Web site names and URLs contain the word “free” and/or are similar enough to annualcreditreport.com to possibly cause consumer confusion. Those using the word “free” include: free3bureaucreditreport.com; freebiecreditreport.com; free-credit-reports.com; freecreditreportsinstantly.com; freecreditreport.com; thefreecreditreportsource.com. Those similar to annualcreditreport.com include: creditreport.com; creditreporting.com; nationalcreditreport.com.

In addition to the use of the word “free” in Web site names and URLs, the word is used liberally on most Web sites studied. Including the nine uses of the word “free” to indicate a Web site’s name, there were 312 uses of the word “free” across the 24 site home pages.

One way in which Web sites can avoid being confused with annualcreditreport.com is to prominently disclose the existence and purpose of annualcreditreport.com to consumers. Fourteen of the 24 sites indicated the existence of annualcreditreport.com, eight of which included this information on their home page.

Most offers contain one or more free credit scores when a credit report or credit monitoring service is purchased. Many offers were imprecise about the exact nature of the credit score(s) to be provided, that is, whether consumers would be receiving the well-established FICO score provided by Fair Isaac Corporation or any of a half dozen other scores associated with one of the three major credit reporting agencies (e.g., VantageScore).

Sites generally did an excellent job of disclosing privacy and security policies. Third-party icons, such as VeriSign, TRUSTe, and BBB OnLine, were commonly used to add credibility to these policies.

Some Web sites did a good job of disclosing their charging and cancellation policies, but others did not. Several Web sites stated explicitly no charges would be made against a person’s credit card until after the expiration of any trial period, while other sites were ambiguous or unclear.

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