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No “free” lunch on some credit report sites

Some web sites market free reports while duping consumers into paying for uneeded services.

July 9, 2007

No ‘Free’ Lunch on Credit Report Sites

Use of ‘Free’ in Marketing Problematic, Creating Potential Confusion Over Rights to Credit Data

YONKERS, NY — Web sites aggressively advertising “free” credit reports are charging consumers for services they are unlikely to need, while drawing attention away from the site created by law to provide consumers with free credit data every year, says a Consumer Reports WebWatch study.

The study analyzes 58 offers made on 24 sites, almost all of which advertise “free” credit reports and scores. Most make the offer in conjunction with the purchase of “credit monitoring” services (which are supposed to notify consumers of changes to their credit reports) or credit scores (which use mathematical formulas to predict consumer creditworthiness based on credit data). Credit monitoring services cost as much as $160 per year on these sites. Credit scores can cost as much as $75.

The Fair and Accurate Credit Transaction Act of 2003 (FACTA) 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 site set up to deliver those reports is www.annualcreditreport.com.

The report notes that the proliferation of Web sites offering “free” credit reports may confuse consumers. Some of those sites even appear to disparage the information on offer from annualcreditreport.com.

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, the largest advertiser on the Web. This concentrated market structure has potentially negative consequences for competition and aspects of market performance (e.g., price, quality, choice, and innovation), the report’s author concludes.

“It seems disingenuous for the same credit reporting companies who were required by the federal government to provide free credit reports to be so heavily engaged in selling these reports to consumers bundled with other credit-related services,” says Robert Mayer, professor of consumer studies at the University of Utah, author of the report.


The sample of 24 Web sites examined in this study was obtained by entering the phrase “free credit report” in the search engines of Google and Yahoo! For each search engine, the first ten eligible organic (i.e., non-sponsored) and first ten eligible sponsored sites were taken, yielding four lists of ten each. After eliminating sites that appeared on more than one of the four lists, 24 unique sites remained.

A questionnaire was developed for the site analysis, using the five Consumer Reports WebWatch Guidelines for Web site credibility as a staring point. Data were collected during mid-December, 2006. Data for each site were coded independently by two researchers, after which any discrepancies were reconciled. Services from six Web sites were purchased by a Consumers Union (CU) employee in late December, 2006 to examine web site practices, including cancellation procedures.

Consumer Tips

WebWatch recommends that consumers relatively unfamiliar with credit reports, scores, and monitoring services should consider each separately and incrementally, rather than buying packages of them.

“Consumers are better off obtaining the three free reports per year they are entitled to by law from annualcreditreport.com, and purchasing credit scores from that site for as little as $8 each, than spending $160 per year on credit monitoring or $75 on scores,” says Beau Brendler, director of Consumer Reports WebWatch.

The three credit reports can be obtained all at once, but many experts advise access be staggered over several months. For consumers curious about their credit scores, one or more can be purchased at low cost when consumers access their reports at annualcreditreport.com.

Consumers should consider purchasing credit monitoring services only after reviewing the contents of their free credit reports, and perhaps one or more credit scores. The sites selling such services say they help protect from identity theft and fraud. But their effectiveness is limited, and neither the U.S. Federal Trade Commission nor consumer groups, including Consumers Union, endorse or recommend them.

Security freezes on credit reports, which are provided by law in a majority of states, may be a less expensive and more effective alternative to credit monitoring services for consumers who are particularly concerned about preventing identity theft. To learn more about security freezes, click here.

WebWatch invites feedback and commentary on the report at its blog, The UnSponsored Link.

About Consumer Reports WebWatch

Consumer Reports WebWatch serves as a daily resource of unbiased and trustworthy information, using the proven methods of Consumer Reports and other independently derived research methods. The WebWatch research agenda includes health, financial services, news and information sites, children?s sites and general issues of concern to consumers on the Web, such as privacy, spyware and information security. Consumer Reports WebWatch at Consumers Union, the non-profit publisher of Consumer Reports magazine and ConsumerReports.org, acknowledges support of The Pew Charitable Trusts, the John S. and James L. Knight Foundation, and the Open Society Institute as instrumental to its founding and first five years of success. WebWatch’s investigative reports, articles and news are available to the general public at http://www.consumerwebwatch.org. WebWatch accepts no advertising or corporate support whatsoever. WebWatch serves as a special unpaid adviser to the http://www.stopbadware.org project of The Berkman Center for Internet & Society at Harvard Law School and the Oxford Internet Institute. WebWatch director Beau Brendler is a member of the At-Large Advisory Committee to the Internet Corporation for Assigning Names and Numbers (ICANN).