ALL THREE MAJOR CREDIT REPORTING BUREAUS WERE FINED THIS YEAR

All three major credit reporting bureaus were fined this year.  

Despite the recent cases against credit reporting agencies, maintaining a healthy credit score is not that complicated. In theory, at least.The credit reporting agency Experian EXPN, +0.00%   was fined $3 million by the Consumer Financial Protection Bureau on Thursday for “deceiving consumers” about how their credit scores would be used. This fine — plus a separate $20 million one in January involving TransUnion and Equifax — reveal some timely lessons for consumers who are seeking a loan or just eager to increase their score, experts say.

Experian, one of the three largest credit-reporting agencies along with TransUnionTRU, +0.54%   and Equifax EFX, +0.59%  , falsely told consumers between 2012 and 2014 the credit scores it was selling (a proprietary score Experian developed, called a “PLUS Score”) would be the same scores lenders would use to evaluate their creditworthiness. And in some cases the CFPB analyzed, Experian’s scores showed “significant differences” from the ones lenders do use, presenting “an inaccurate picture,” the CFPB found. (Experian told MarketWatch that it accepted the consent order, but did not admit any of the allegations and said the consent order addressed past practices.)

In January, TransUnion and Equifax were also fined by the CFPB for deceiving consumers about the cost and meaning of their credit scores. Those reporting agencies between them were required to pay $17.6 million in restitution to customers and another $5.5 million in fines to the CFPB. (The companies told MarketWatch that they complied with the law.)

 But the cases raise some timely issues for Americans. Firstly, there is not one single credit score or scoring model that’s used by every lender, and “educational” credit scores such as the ones Experian promoted are not the same ones that lenders use, the CFPB said. In fact, many banks and other lenders develop their own scoring systems, often using a credit reporting agency’s score for only part of their calculation, whether that is a “VantageScore” or a Fair Isaac Corporation (FICO) score.

(One exception to this scoring system is applying for a mortgage; agencies Fannie Mae and Freddie Mac explicitly say which score they will use to determine creditworthiness, said Nick Clements, the co-founder of personal finance company MagnifyMoney, who previously worked in the credit industry, including as a director of risk management at Citi.)

Banks and lenders have different views on creditworthiness

Secondly, when consumers check their credit scores online or through their banks or credit card companies, they should look at what range their score is in to get a general sense of where they stand. There is a catch, however. They should not assume it is a guarantee that a certain bank or other lender will find them creditworthy, Clements said.

Checking one’s credit score through a credit reporting agency, bank or credit-card issuer is still a good idea, as long as consumers understand what that score means, Clements said. In the past, finding out one’s credit score was rarely free and often a more difficult process, but companies such as Credit Karma (founded in 2007) that allow customers to check their scores for free, plus the CFPB’s calling on major credit card companies to make credit scores available to consumers starting in 2014, has created more transparency.

Thirdly, consumers are able to get a free copy of their credit reports every 12 months from each credit reporting company by visiting AnnualCreditReport.com. Many banks and credit cards also allow consumers to check their scores for free (as of December 2015, more than 100 million credit card accounts offer consumers free access, the CFPB found). Some of these include Discover DFS, +1.82%  (which allows even non-customers to check their FICO scores online), Chase JPM, +1.08%   for its Slate card holders and Bank of America BAC, +2.21%   for all card holders.

There’s a reason for all of this maintenance. Not keeping track of your credit score can be costly. The primary way to maintain a high credit score is paying off bills on time. Low credit scores are likely to increase the finance charges on a $20,000, 60-month car loan by more than $5,000, up from 16% a year ago, according to the results of a survey by 1,000 people carried out for the Consumer Federation of America and VantageScore Solutions, which operates a credit score model. And 41% incorrectly think extra charges would be less than $3,000.