Washington pushes for free credit scores

The credit score, however, has not been made available for free. It is a numerical representation of the information in a consumer's credit report, which covers a consumer's entire credit history -- all debts, payment habits, and jobs held. The credit score is widely used as a shortcut by lenders, so monitoring it is crucial.

But options for getting a credit score have been limited to many "for-fee" sites. Some have lured consumers in by offering a "free" score in return for signing up to a credit monitoring service that could cost $14.95 a month or more, if consumers don't opt out before the end of the trial period.

The amendment "dramatically increases the number of people getting this critical piece of information," said Jennifer Talhelm, a spokeswoman for Sen. Mark Udall, D-Colo., who is sponsoring the effort.

A recent survey from the National Foundation for Credit Counseling found that some 65% of adults have not checked their reports in the past year. And nearly one-third of adults don't know their credit score.

Your credit score is used to determine far more than the cost of borrowing money.

Finding a job. More and more often, employers are using credit reports to help make decisions about job applicants. Employers conducted credit checks on 60% of job candidates in 2009, according to a recent survey from the Society of Human Resource Management, looking for top red flags such as bankruptcies or accounts that are in debt collection. By law, your employer must inform you if you're denied a job because of your credit history.

Buying a house. The consumer credit rating agencies use different numerical scoring systems, but generally speaking a 680 and above sits within the "good to excellent" range, while scores below 680 are labeled "ok to poor."

Only a credit score of 740 or better get the best mortgage rates, according to Greg McBride, senior financial analyst for Bankrate.com. A score between 700 and 740 could jack up interest rates by 0.5% to 0.8% on average. Anything less than 700 could be problematic in today's tight credit market.

Credit cards and student loans. If your credit score is 700 or better, you're in great shape to get the most competitive credit card rates, which average about 14% for a variable rate card. For those with marginal or poor credit, it will be more difficult to get a card at all. And those who do qualify will see lower credit limits, rates in the high teens to low 20% range, and more credit card fees, said McBride.

Even college students need to pay close attention to their credit scores because it's the primary factor in determining the rate on private student loans, which can range anywhere from 5% to 13% these days.

Auto insurance premiums. Insurers look at things like payment patterns, length of credit history, and the number of new applications for credit when calculating their risk formulas.

Not only can credit problems signal that you have little cash on hand to absorb the cost of an accident, making you more likely to file a claim, but studies have shown a correlation between bad credit and accidents. This could translate into higher premiums.

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Consumers should not apply for loans, just to get their scores. Multiple "inquiries" on your credit report can lower your overall credit score.

Although experts say Udall's bill is a step in the right direction, some are concerned that it will fall flat if it doesn't address the fact that lenders use multiple scores to assess creditworthiness.

"The most widely used score is the FICO," says Gail Cunningham, a spokeswoman for the National Foundation for Credit Counseling, "but the top three bureaus' are proprietary scores based on their information."

And some say that without context, including credit score ranges and scores relative to other credit rating agencies, consumers will not gain much.

"That's the type of context consumers will need to get the most benefit from having this type of information," said McBride. "Otherwise, [the credit score] is just a 3-digit number, which wouldn't be terribly meaningful to many consumers."

Still the bill may open the door to wider availability of free credit scores - for example, not just when you're denied credit, but perhaps once a year as is the case with your credit report.

"The government's website (annualcreditreport.com) started much in the same way, where consumers got their free credit report when denied credit," said Cunningham. "This may be a first step toward universally providing free credit scores to consumers."  

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