I recently requested a credit report just to see if I've succeeded in keeping track of all my various bills and debts. I really wanted to know, and would have done so earlier, but I have heard that it actually hurts your credit score to request a report. This seems perverse-- shouldn't we want to encourage people to keep looking at their credit reports, so that they can plan their futures better, and recognize problems of personal financial irresponsibility early so they can try to mend their ways?

It might make sense, however, if a person asking for his credit report is a statistical predictor of credit problems, even if it's also a remedy for credit problems. That is, suppose there are two kinds of people, those who always pay their debts immediately, and those who are more forgetful and hand-to-mouth and sometimes leave bills and debts unpaid. The former never bother to think about their credit, knowing it's good, while the latter will sometimes check credit reports, either when they're planning to go into some more debt, or else in sporadic efforts at self-reform that sometimes help but rarely convert the shiftless entirely to responsibility. In that case, requesting a report may be an indicator of a higher likelihood of credit problems, before any other signs of these show up in the data.

So here's my question.  Suppose a law were passed which prohibits credit scoring agencies from penalizing a person's credit for requesting a report.  Would this law be inefficient?  On the one hand, the information effect of it would be negative: some creditworthy people would be pooled with some less-creditworthy people; there would be more non-payment of bills, and some good loan contracts would fail to be arranged because banks would be deprived of the positive credit information "this person never checks his credit score."  On the other hand, the incentive effect might be positive: people would check their credit reports more frequently, and would recognize their own financial irresponsibility more easily.

Hmm.  How would you model this?

Comments

[nato]

Actually, it's already required that requesting your own report be credit neutral. Indeed, you can get a report every day without it impacting your credit. However, many states and possibly the feds require that every reporting agency give one free credit report to those reported upon annually. These normally cost perhaps $20 or so, so there's an incentive to make people think that requesting their report will negatively impact their credit. I've had representatives do that and it made me really, really angry. Currently I use a USAA service that's $6/mo for as many Experian reports as I please (I can refresh daily if I want) and then request the other majors once a year just to make sure they're all in sync, and I know first hand that it doesn't impact my score at all. Other people requesting my credit seems to drop me 4 or so points.

In any case, there's been a number of times when either debts were allotted to me erroneously (say, by vendors who had failed to cancel accounts when asked) or when I've been directly unaware (I believe I failed to cancel one of my utilities when I joined the Army and they were unable to contact me), or when they had simply recorded facts wrong ($3200 owed to me *by* a credit card company was being treated as my own debt), so that I have become a true believer in credit reports, especially now that I can get them online without it requiring a lot of paper correspondence at which I'm terrible.

[Tom]

Hmm... interesting. I can't remember the last time I looked at my credit. I know it was probably when I bought my house almost two years ago, but I don't remember looking at it. I'm sure it's excellent, but there could be errors in the report like Nato suggested.