Credit Reports and Scores

Credit scores are used to evaluate consumer credit risk. They are a significant factor in determining whether a consumer qualifies for credit, how much credit is made available, the cost of the credit, and under what terms. Credit scores are calculated from credit reports. These reports include detailed information on a consumer’s credit activity. Among the factors included are payment history, amounts owed on debt, length of credit history, whether new credit accounts have been opened, and the mix of credit a consumer has. Not all relevant credit information is always included in credit reports. Some companies only report negative information—such as an unpaid phone bill—without also including positive information.

Industry sources estimate that credit scores are a determining factor in 90 percent of all consumer credit decisions in the U.S. Despite the importance of credit scores, many credit reports are inaccurate. In 2016, consumers disputed 91 million items on credit reports, according to an investigation by the Senate Commerce Committee. Consumers have the right to obtain a free copy of their credit report each year from the three major nationwide credit bureaus. In addition, they can place or lift freezes on their credit reports at any time for free. This is an important tool to protect against identity theft (see also Identity Theft and Fraud).

Informational credit scores are often available for free on credit card statements, on banking apps, and through various online financial management tools. These scores give a general sense of a customer’s creditworthiness, but they do not reflect the actual score obtained when a borrower applies for a loan. Therefore, they cannot be used to negotiate a better rate.

Credit scores during declared emergencies: During public-health emergencies, natural disasters, and other declared emergencies, consumers may be unable to make payments to creditors through no fault of their own. They may also seek accommodations with creditors. However, credit reporting agencies do not always take these external factors into account. As a result, consumers may find that an emergency harmed their credit, making it more difficult for them to recover financially. Providing them with access to more frequent free credit reports could help them improve their credit, for example, by allowing them to challenge a negative item.

Alternative data: As of 2022, 11 percent of U.S. adults—some 28 million people—are “credit invisible.” They have no credit history with any of the nationwide credit reporting agencies. An additional 21 million (8 percent) have too little history to receive a credit score. People from communities of color, as well as people with low incomes, are most likely to fall into these groups.

Allowing credit bureaus to collect and analyze new types of data, such as rent and utility payments, could enable more Americans to have a credit file and a credit score. However, automatically providing this data to the nationwide credit bureaus would take away consumer control over that information. In addition, some people who already have a good credit score might see theirs go down. As such, if alternative types of data can be reported, consumer protections are key, such as requiring meaningful affirmative consent from consumers to collect, analyze, and report alternative data.

Medical debt reporting: As of June 2023, the number of people with medical bills in collections on their credit reports has declined to about 5 percent, a drop from 14 percent in March 2022. This is because the major credit bureaus no longer include medical debts under $500 on consumer credit reports. Nevertheless, nearly 15 million consumers still collectively hold $49 billion worth of medical bills on their credit reports.

Even consumers with comprehensive health insurance are affected. The CFPB found that Americans age 65 and older, almost all of whom are covered by Medicare, have higher out-of-pocket health costs than any other age group. In 2020, nearly four million people age 65 and older reported having unpaid medical bills.

Yet medical debt is not acquired in the same way that other debt is and is not an indication of how creditworthy individuals are. People often have no choice but to take on medical debt, which frequently results from unforeseen and urgent circumstances. Patients cannot typically comparison-shop for services, as pricing is not transparent. And billing errors are common, particularly among older adults, who are more likely to have more than one source of insurance.

In early January 2025, the CFPB finalized a rule that would remove medical bills from most credit reports, stop credit reporting companies from sharing medical debts with lenders, and prohibit lenders from making lending decisions based on medical information. However, the rule was frozen later that month and has been challenged in court.

Noncredit uses of credit scores: Credit scores have been designed specifically to measure the likelihood that a borrower will pay on time or default upon a credit obligation. They are not designed for other purposes. Increasingly, however, employers, utility companies, insurance companies, and other businesses have used credit reports and scores to determine a person’s suitability or qualifications. This creates severe disadvantages for the millions of Americans with limited or flawed credit histories.

Moreover, there are deep and serious disparities in credit scores by race and ethnicity and some disparities by income. As a result, this practice can mean that Black Americans, Hispanic/Latino Americans, and people with low incomes are unfairly denied access to jobs and affordable products and services. In addition, credit reports often contain inaccuracies. The Federal Trade Commission found that 20 percent of consumers had verified errors in their reports, with 5 percent (over 10 million consumers) having an error so serious that it would cause them to be denied or pay more for credit.