Credit Bureaus Try to Disguise Themselves as Your Friends

David A. Szwak

Credit Bureaus Try to Disguise Themselves as Your Friends

Postby David A. Szwak » Sun Mar 19, 2006 3:01 pm

Credit Bureaus, Often Feared,
Are Now Selling Themselves
As the Consumer's Best Friend
By CHRISTOPHER CONKEY
March 15, 2006; Page B1

For many years, consumers viewed the nation's three big credit bureaus as shadowy and vaguely threatening, about as friendly as the IRS or a debt-collection agent. The credit bureaus didn't much care; they saw consumers as raw material -- fodder for credit reports and marketing lists that they'd sell to banks, insurers and mortgage lenders.

Now, that relationship is getting a major makeover. The three firms -- whom the government fined a total of $2.5 million for failing to answer consumers' phone calls in 2000 -- are going out of their way to interact with consumers they once shunned, pitching them an ever expanding array of credit-related products. The about-face gives Equifax Inc., Experian and TransUnion LLC a fast-growing revenue stream to supplement their traditional focus on business clients, and offers consumers new tools -- for a price -- to help them demystify the credit system, fight fraud and sometimes save money.
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• See tips1 on how to find your score and what it means.

For house hunters, TransUnion's $9.95 KnowYourLoanRate simulator not only gives consumers a credit report and score, it also analyzes their debt-to-income ratio and breaks down various loan terms. For used car buyers, Experian's $59.99 AutoCheck with TitleGuard offers 60 days of history checks on cars and title insurance of as much as $50,000. For those concerned about fraud, Equifax's Credit Watch Gold with 3-in-1 Monitoring, priced at $129.95 per year, provides unlimited access to each of their three major credit reports and sends email alerts whenever changes occur, such as unpaid balances or the appearance of suspicious new accounts.

"The consumer reporting agencies used to view [consumer interaction] as kind of an expense and onerous and it wasn't anything they were too interested in," said John Danaher, the president of TrueCredit, TransUnion's consumer division. "We want that experience to be a positive one. This is a business now."

Yesterday, the three bureaus unveiled a common approach to credit scores, called VantageScore that, they said, will make life simpler for consumers -- for a fee. (See related article2.) Until now, each of the three firms used a different formula to devise a credit score.

The bureaus hope customers will turn to these services when they are securing big loans or buying expensive goods on credit. But fears of identity theft are also creating business. All three companies say their most expensive credit-monitoring services, which use email alerts to help detect fraud, are among their best sellers. "Don't Let Identity Thieves Ruin Your Credit," reads the pitch for Equifax's Credit Watch Gold service on its Web site. In the recent movie "Firewall," the filmmakers had Harrison Ford's character discover he's been targeted by an identity thief by monitoring his Equifax credit report.

Atlanta-based Equifax says annual revenues for its "personal solutions" division, which sells consumers credit scores (used by lenders to assess risk and set interest rates), reports and monitoring services, jumped by more than 60% to $115 million over the last two years, outpacing the 19% rise in its $800-million-a-year division that sells credit information and risk-assessment tools to businesses.

Experian, a Costa Mesa, Calif.-based unit of British retail giant GUS PLC., hardly had a consumer division four years ago; today, its Experian Interactive accounts for nearly 32% of U.S. sales. Closely held TransUnion, based in Chicago, won't disclose sales figures but says its direct-to-consumer business has three million customers.
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The rush to tap the consumer market is driven by technology, regulation and competition, and is altering the historically strained relationship between consumers and the credit bureaus. Since their founding in the late 1800s as a way for merchants to keep tabs on delinquent customers, credit-reporting agencies have profited by quietly gathering personal information about consumers and their financial accounts, analyzing the information and then selling it to businesses.

In an economy increasingly based on credit, those tasks are vital. But credit reports can be flawed, and consumers have little or no control over the system. For years, many consumers would discover the existence of credit bureaus only when they were turned down for a loan. The bureaus were content to deal exclusively with business clients, and direct contact with consumers generally took the form of angry phone calls or letters of dispute.

The first hint of change came in the mid 1980s when TRW Inc., the predecessor to Experian, started marketing credit reports directly to consumers. Complaints about inaccuracies, however, brought scrutiny, and by 1991 the company was pressured by state and federal regulators into giving consumers one free report per year. Several states adopted similar mandates. After a string of public-relations headaches, TRW eventually sold its consumer business.

By the late 1990s, however, Web use was spreading and start-up sites like ConsumerInfo.com and TrueCredit.com began selling the bureau's reports to consumers. By 2000, all three credit bureaus had followed and were making reports available online, although the business had yet to take off. "We knew enough to know that this thing was headed somewhere," said Don Robert, CEO of Experian since 2002. "We really didn't know how big it would ultimately be."

In 2002, Experian upped the stakes by purchasing Consumerinfo.com. TransUnion acquired TrueCredit the same year. In 2003, Congress mandated that consumers be given one free credit report from each of the three major bureaus once a year. While the industry feared that the law would undercut its new consumer efforts, it seems instead to have steered new customers to them. With Experian's new products and marketing, the company's annual consumer credit sales surged to more than $300 million last year from $60 million in 2001, says Mr. Robert.

Learning to embrace the customer hasn't always been easy. Last year, for example, Experian was fined $950,000 by the Federal Trade Commission after the company was accused of tricking consumers trying to get a free credit report into signing up for a $79.95 credit-monitoring service. Many consumer advocates say consumers often end up buying products from the credit bureaus that they don't need, particularly in light of the recent law granting free reports each year. The San Diego-based Identity Theft Resource Center, for example, cautions on its Web site: "For all practical purposes you can create your own monitoring service using free credit reports...In other words, order one bureau this month, a different bureau's report in 4 months, and the third one four months later."

There can be benefits to everyday monitoring, though. Jennifer Jones, a 33-year old marketing executive in Atlanta, has been victimized by identity thieves who have repeatedly written fraudulent checks and opened bogus accounts in her name across the country. She regularly checks her credit reports for signs of fraud through Equifax's Score Watch service, which costs $79.95 a year. "Just last week, I got an email from Score Watch saying there was a change," Ms. Jones said. "It listed a check paid for some utility bill in Boston."

Craig Hudson, a 33-year-old computer consultant in Chicago, uses a TransUnion credit-monitoring service in a different way. By learning factors that raise and lower scores, Mr. Hudson has slowly been able to track and improve his scores, which have gone from an average of 540 a year ago to 620 today. He's hoping to get them closer to 700 so he can secure better rates on a mortgage later this year.

"We don't learn anything in school about managing credit," Mr. Hudson said. "You don't realize how important it is until you try and do something...It's like I'm micromanaging my credit now."

Executives at the major credit bureaus increasingly are marketing their consumer products around major "life events" like buying a car or house or taking out a student loan. The idea is to convince consumers that by better managing their credit reports and scores, they can save money on all types of loans and credit lines.

*Experian recently bought the comparison-shopper site PriceGrabber.com, and already owns the loan-comparison site LowerMyBills.com* and others designed to help consumers choose between everything from school programs to furniture. The acquisitions give the company the ability to cross-market credit products to consumers considering major purchases. "Whenever they have something big going on," Mr. Robert said, "it involves money."

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