To extend the expiring FCRA preemption provisions and address  continuing concerns about inaccuracies in reports, identity theft, and other  matters, Congress passed the Fair and Accurate Credit Transactions Act of  2003 (the FACT Act), which amended FCRA. Finally, as we have noted, the FACT Act created FLEC to improve financial  literacy and education and, among other things, required FLEC to increase  consumers’ awareness and understanding of credit reports and scores. But many consumers  did not know other important information, such as how long information  remained on their report and the impact their credit history could have on  insurance and employment. Most Consumers Knew Some of the Possible Impacts of Credit Reports and Some Rules Governing Access

We found that most consumers understood some of the ways their credit  history—as contained in their credit reports—could affect their lives, but  around one-third were not aware of several potential uses of their reports. 1). Consumers’ Knowledge of the Dispute Process Was Limited, and Few Consumers Had Disputed Information

Consumers knew that they could dispute inaccurate information on their  credit reports, but fewer than half were able to answer specific questions  about the dispute process and their rights. For example:  72 percent did not know that CRAs investigate incorrect information for   60 percent did not know that resolving a dispute with one CRA did not  mean that the other CRAs would automatically correct the  information; 59 percent did not know that they had the right to add an explanatory  statement to their credit reports if they were unable to resolve a dispute;  and  62 percent did not know which agency to contact if they were not  satisfied with a CRA’s work—for instance, if a dispute was not  resolved—and few (6 percent) named FTC as the government agency  they would contact. Certain Demographics and Credit Experiences Are Associated with Consumers’ Understanding of Credit Reporting Issues

We found that education, income, race/ethnicity, employment status, and  age, as well as having had an automobile or mortgage loan and experience  with the credit reporting process, all had a statistically significant effect on  consumers’ knowledge of credit reporting. We found that most consumers  understood the basics of credit reporting but were less aware of other  important information, including:  The impact of information contained in credit reports, how long  information remains on reports, some types of information reported,  and the possible impact of credit history on insurance coverage and  premiums and employment;  How various behaviors impact credit scores—for example, that using all  available credit and frequently applying for new credit can lower a  score;  The dispute process and federal protections under FCRA, as amended  by the FACT Act—for example, that CRAs investigate erroneous  information for free, that the FACT Act allows consumers a free credit  report each year, and FTC is the federal agency charged with enforcing  consumer protections for credit reporting by CRAs. In addition, we recommend that the Chairman of FTC, through ongoing  educational initiatives, materials, and public announcements, and in light  of FTC’s responsibility to protect consumers and enforce consumer rights:   Improve consumers understanding of how credit reports and scores are   Encourage consumers to obtain their credit reports and credit scores  and if necessary, dispute inaccurate information on their reports; and   Educate consumers about FTC’s role in enforcing consumers’ rights in  credit reporting. In addition, this report discusses  some of the factors that are associated with consumers’ understanding of  these issues. a)  a potential employer? Further, we  found few specific areas in which knowledge differed between genders.
Why GAO Did This Study

This report responds to a mandate in the Fair and Accurate Credit Transactions Act (FACT Act) of 2003 requiring GAO to assess consumers' understanding of credit reporting. The FACT Act, among other things, extended provisions governing the credit reporting system and addressed ongoing concerns about inaccuracies in credit reports. For example, the act expanded access to credit information by entitling consumers to one free credit report each year. It also established the Financial Literacy and Education Commission (FLEC) to improve consumers' understanding of credit issues. This report examines consumers' understanding and use of credit reports and scores and the dispute process and looks at factors that may influence their understanding of credit reporting.

What GAO Found

Based on survey responses for a national sample of 1,578 consumers, GAO found that consumers understood the basics of credit reporting and the dispute process. For example, many consumers understood what a credit report contained and the sources of this information, and about 60 percent had seen their credit reports. However, many consumers did not know more detailed information, such as how long items remained on their credit reports or the impact their credit history could have on insurance rates and potential employment. Further, most consumers knew what a credit score was, and approximately one-third had obtained their credit scores, but many did not know that some behaviors--such as using all their available credit--could negatively affect their scores. Similarly, GAO found that most consumers knew they had the right to dispute information on their credit reports, and a small percentage (18 percent) had disputed inaccuracies. But most consumers did not fully understand their rights in the dispute process--for example, that there is no cost to dispute inaccurate information or that they could contact the Federal Trade Commission, the federal agency primarily responsible for enforcing consumers' rights with respect to credit reporting agencies (CRAs), if they could not resolve a dispute with the CRAs. GAO also found that several factors were associated with consumers' knowledge. For instance, having less education, lower incomes, and less experience obtaining credit were associated with lower survey scores, while having certain types of credit experiences--such as an automobile loan or a mortgage--were associated with higher scores. Other factors, such as gender and living in a state where credit reports were free prior to the FACT Act, did not have a significant effect on consumers' knowledge. Educational efforts could potentially increase consumers' understanding of the credit reporting process. These efforts should target those areas in which consumers' knowledge was weakest and those subpopulations that did not score as well on GAO's survey.