CRAs are private sector companies that receive information from businesses that offer credit and from other sources and compile this information into credit reports that are sold for a fee to consumers and other businesses. The U.S. credit reporting system is voluntary, as federal law does not require lenders and other creditors to report to CRAs. Creditors may report consumer information to one, all, or none of the CRAs, and information on individual consumers may differ among the three agencies. Lenders rely on credit reports when deciding whether to offer credit to an individual, at what rate and on what terms. In addition, a growing number of decisionmakers, including potential employers, insurance underwriters, and landlords are using credit reports to assess applicants’ creditworthiness. The credit reports the CRAs provide generally contain certain standard information, including: Credit histories that list consumers’ experiences with credit and credit behavior—for example, any loans and credit cards on record and payment histories for each; Identifying information such as names, addresses, Social Security numbers, and employment data (other than salary); Information related to monetary transactions that is a matter of public record, such as tax liens (claims against property for unpaid taxes), debt-related judgments or court orders, and bankruptcies; and Inquiries made by others—for instance, mortgage lenders or banks—about consumers’ credit histories. In addition to compiling credit reports, CRAs also calculate credit scores, which attempt to predict the likelihood that a person will repay a loan. Credit scores, which help creditors analyze information in credit reports and make decisions on granting credit, are derived using a mathematical model that takes into account the information contained in the reports. In the 1950s, Fair Isaac Corporation developed one of the first mathematical models for scoring credit applications. Before credit scores became widely available, lenders or credit examiners would evaluate information in credit reports to decide whether or not to grant credit. Over time, credit scores were viewed as a more efficient and consistent method for evaluating information in credit reports, and by the early 1990s all three nationwide CRAs had begun selling them to businesses along with credit reports. In 1970, Congress enacted FCRA—the primary federal legislation governing the content and use of credit reports and the credit reporting industry in general. The act contained several important measures. For instance, FCRA: Provided a uniform basis for consumers’ access to information in their credit reports at a reasonable charge; Subject to certain exceptions, prohibited CRAs from reporting specific types of negative information that was older than 7 years; Required CRAs to identify for consumers, on request, sources of credit report information and the names of those receiving a credit report within the time periods specified in the act; Required CRAs to provide free reports to any consumer who requested a copy of a report following an adverse action, such as failure to obtain credit, insurance, or employment, within a month of the action; and Required CRAs to implement a dispute resolution process to investigate and correct errors and to remove information found to be erroneous. The dispute resolution process established in FCRA required CRAs to investigate within a reasonable period of time items that consumers reported as inaccurate or incomplete. CRAs were required to delete promptly any disputed data that they could not verify within that period. For unresolved disputes, FCRA allowed consumers to add a brief explanatory statement to their credit files. When information was not deleted, CRAs were required to note the dispute in subsequent reports containing the information in question and include the consumer’s statement or a clear summary of it. In addition, the act required CRAs, upon the consumer’s request, to notify those who received the reports that information had been deleted or that the consumer had filed a dispute statement. Finally, FCRA gave FTC responsibility for enforcing CRA’s compliance with the act to the extent that this authority did not overlap the authority of other federal agencies specified in the act. Despite the consumer protections FCRA offered, starting in the late 1980s consumers began raising new concerns about credit reports and CRAs. For example, consumers maintained that CRAs were not responding to consumers’ requests for assistance. In addition, lawsuits were brought against the three CRAs on issues related to accuracy. In 1996, Congress amended FCRA. Among other things, the 1996 amendments required CRAs to provide consumers, upon request, with access to all information in their credit files (except credit scores) at a cost not to exceed $8.00, improved the process for investigating disputed information, and permitted use of credit reports only for certain purposes, such as solicitations for credit and insurance. The time period for investigations of a dispute was narrowed from a “reasonable period of time” to, in general, 30 days, and CRAs were required to conduct investigations at no cost to the consumer. The 1996 amendments also added the definition of an “adverse action” and gave consumers access to a free credit report each year if they were unemployed but intended to seek employment, were on public assistance, or suspected that a credit report contained inaccurate information due to fraud. 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. Had the provisions expired, states generally could have enacted laws covering matters that had been governed exclusively by FCRA. Industry participants and others believed that national standards and uniformity of credit information were key to maintaining efficiency in credit markets and that the loss of federal preemption in those areas that had been exclusively subject to FCRA would threaten this efficiency. Among other things, the amendments: Expanded consumers’ access to credit information and sought to promote accuracy within credit reports by, among other things, entitling consumers in all states to one free credit report each year from each of the three CRAs. However, according to FTC, seven states already allowed consumers at least one free copy annually (Colorado, Georgia, Maine, Maryland, Massachusetts, New Jersey, and Vermont);” Expanded creditors’ responsibilities for furnishing accurate data. The FACT Act mandated that the federal banking agencies, National Credit Union Association (NCUA), and FTC issue joint regulations identifying the circumstances under which furnishers of information would be required to investigate the accuracy of information in a credit report when asked to do so by a consumer; Established a regulatory scheme under which creditors were required to notify consumers when information from credit reports negatively affected the terms of credit, such as interest rates on credit cards and loans. The notification would also have to inform potential borrowers that they could obtain a copy of their credit report from the CRA, without charge; and Strengthened victims’ rights with respect to identity theft, made credit history restoration easier, limited the sharing and use of medical information within the financial system, required mortgage lenders to disclose credit scores to applicants, and required CRAs to offer credit scores to consumers for a reasonable fee. 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. Several public and private entities had already undertaken and continue to operate initiatives to increase consumers’ knowledge of credit reporting issues. Within the federal government, a number of agencies sponsor financial literacy initiatives that include a credit literacy component, such as the Federal Deposit Insurance Corporation’s (FDIC) Money Smart program, the Department of Defense’s Financial Readiness Campaign, and the Federal Reserve’s nationwide financial education campaign, “There’s a Lot to Learn about Money.” In order to fulfill its mandate to protect consumers from deceptive and unfair business practices in the marketplace, FTC engages in several activities, including maintaining a Web site that features educational information on credit reporting and other financial topics and a toll-free number for complaints and questions. Some private sector initiatives include the Federal Home Loan Mortgage Corporation’s (Freddie Mac) CreditSmart® Program, which is devoted exclusively to promoting credit literacy and features modules on interpreting credit reports. Fair Isaac Corporation maintains a Web site to disseminate information on credit education. In addition, all three nationwide CRAs engage in educational efforts through their Web sites and partnerships with national organizations or schools. GAO has also addressed the issue of financial literacy among consumers. The most recent effort was a forum hosted on July 28, 2004, on the role of the federal government in improving financial literacy. Forum participants included experts in financial literacy and education from federal and state agencies, the financial industry, nonprofit organizations, and academic institutions. During the course of the forum, credit experts agreed that consumers would benefit from more education on credit, including the cost of credit, how to use credit, and how to manage credit responsibly. Forum participants also advocated targeting low-and moderate-income individuals and families, immigrant populations, and young people in these education efforts. Similarly, a Federal Reserve study on financial education found that successful financial education programs target specific groups, such as youth or minority populations. On the basis of responses to our questionnaire, we found that consumers generally understood credit reports and had viewed their reports but that many lacked specific knowledge about what their credit reports contained, how they were used, and other potential impacts of their credit history. Correct responses to individual questions varied widely, ranging from a high of 95 percent who knew that their credit history could affect their ability to get a loan to a low of 7 percent of consumers who knew that the credit reporting system was voluntary. We found that basic questions generated the most correct answers. For example, most consumers could correctly choose a description of a CRA and were aware that credit reports contained information such as credit card balances. 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. We also found that more than half of consumers—58 percent—said that they had viewed their reports, generally before making a large purchase or refinancing a mortgage. We designed our survey to assess consumers’ awareness of three distinct aspects of credit reporting—credit reports, credit scores, and the dispute resolution process—and collected responses from a random probability sample of people throughout the United States. Our survey included 58 questions. Twenty-three survey questions (worth a total of 56 points) were created to test consumers’ knowledge of credit reporting issues. In addition, we incorporated 22 questions that were designed to obtain consumers’ opinions about these issues and to examine their experiences with the credit reporting process, along with 13 demographic questions. The mean score or average score on the survey was 55 percent, measured as the percentage of correct answers to the 23 questions designed to test knowledge (see app. I). Many consumers appeared to know how to obtain a copy of their credit report. For example, 25 percent of consumers said that they would go to a CRA, and an additional 6 percent named a specific CRA. Twenty-six percent of consumers said that they would go online, and 3 percent said that they would go online to a specific CRA. Some consumers who did not identify a direct source of credit reports, such as a specific CRA, said that they would ask a bank or financial institution, a credit card company, or the institution where they had applied for a loan—all places that could direct them to a CRA or another means of obtaining their report. Seventy-one percent of consumers also said that they understood that they could order a copy of their credit report at any time for any reason. The Consumer Federation of America (CFA) found in its July 2003 study that the majority of its respondents—97 percent—knew that consumers had the right to see their credit report. Appendix III contains more results from relevant studies. Before consumers answered any questions about credit reports, our survey asked them to provide their own definition of what a CRA did. Based on their responses, we determined whether consumers had no knowledge, their knowledge was unclear, or they appeared knowledgeable. We found that 19 percent of consumers were able to correctly articulate what a CRA does but that 53 percent were unclear on this point. Another 28 percent of consumers’ explanations were clearly incorrect, or the consumers said that they did not know what a CRA did. However, as figure 1 shows, the majority of consumers—82 percent—were able to select the correct description of a CRA from among multiple choices. Only 19 percent of consumers answered the multiple choice question incorrectly or said that they did not know. However, many consumers did not know specific information related to obtaining their reports, such as the names of the CRAs and the cost of ordering credit reports. Twenty percent of consumers correctly named one CRA, 10 percent were able to name two, and 3 percent were able to name three. Sixty-seven percent of consumers were unable to name any of the CRAs. CFA’s 2003 survey found that 75 percent of respondents were unable to name any CRAs and that just 15 percent could name one CRA. Further, fewer than half of our respondents—approximately 45 percent—knew the cost of a credit report. Before the implementation of the FACT Act, consumers generally had to pay for copies of their credit report in all but a few circumstances. According to FTC, the laws of seven states (Colorado, Georgia, Maine, Maryland, Massachusetts, New Jersey, and Vermont) provided for free access to credit reports, upon request, at least annually. We asked consumers throughout the United States whether they lived in one of these “free report states” and found that 49 percent of those consumers who did were aware of it. Forty-six percent of these consumers did not know that they lived in a free report state, and 5 percent responded incorrectly. In addition, in our survey (conducted after the passing of the FACT Act but prior to its implementation) we also asked consumers whether a new law affecting their rights regarding credit reports and scores would entitle all consumers to request one free credit report a year. Forty-seven percent correctly responded that the new law did give consumers this right, 49 percent said that they did not know, and 4 percent responded incorrectly. In addition to generally knowing how to obtain their credit reports, we found that a majority of consumers could also identify most of the information contained in their reports. As shown in figure 2, most consumers knew that their credit reports contained their Social Security numbers, credit payment history, and any bankruptcies. In addition, 92 percent of consumers answered correctly that credit card companies could report unpaid bills. In July 2003, the Federal Reserve reported data showing that 81 percent of their survey respondents knew that credit reports included employment data, payment histories, any inquiries made by creditors, and information from public records (see app. III). With respect to our survey data, we found that fewer consumers knew what their reports might not contain. Fifty-nine percent of consumers knew that their reports did not contain information on race, but 15 percent of consumers incorrectly thought race was included, and 25 percent did not know. Fifty-eight percent of consumers knew that balances in their checking accounts were not on their report, while 21 percent of consumers thought balances were on their reports, and 21 percent did not know. We also asked consumers whether they thought income was on their credit reports, and 37 percent correctly responded that it was not, while 20 percent did not know if it was included. While some confusion exists as to whether income is included on credit reports, we spoke with all three of the nationwide CRAs to determine if they included income in credit reports. Representatives from all three nationwide CRAs told us that their credit reports do not show information on consumers’ incomes. In addition, according to the three CRAs, the format CRAs use in creating credit reports for individuals—the Metro 2 format—does not include a field for income, and CRAs do not collect this information. However, in commenting on a draft of this report, FTC officials told us that income sometimes, although rarely, does appear on credit reports. Based on our discussions, we considered the responses of consumers who said that income was not included in their credit reports as correct. In addition, before asking consumers multiple choice questions about credit report contents, we asked them to provide their own definition of a credit report. We found that 19 percent of consumers appeared knowledgeable, but the level of knowledge was unclear for an estimated 63 percent. We found that 14 percent of consumers gave clearly incorrect responses or responses showing that they did not know. Most consumers also knew some sources of the information on their credit reports, although few knew that the credit reporting system was voluntary. Eighty-nine percent of consumers knew that banks and credit card companies provided information to CRAs, and 79 percent knew that debt collectors did. Fewer consumers—46 percent—knew that information on their credit report could come from courthouse and other public records. Still fewer—7 percent—knew that lenders were not required to report information to any CRA. We found that 57 percent of consumers did not know how many CRAs lenders must report to, and 25 percent incorrectly thought that lenders were required to report to all of the CRAs. Because the credit reporting system is voluntary, consumers need to understand that their credit reports may differ from one another and may not contain all information related to their credit history. For example, if a consumer is making timely loan payments to a lender that does not report to any of the CRAs, this payment history will not be included on the consumer’s credit reports. We also asked consumers if they knew how long information stayed on their report. We wanted to examine whether consumers were aware of the full impact their credit behaviors, such as making late payments or filing for bankruptcy, could have on their credit report. We found that 47 percent of consumers knew that information could generally stay on their report for 7 or 10 years. Twenty-seven percent of consumers said that they did not know how long information remained on their reports, and 26 percent answered this question incorrectly. 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. For instance, most consumers (95 percent and 72 percent, respectively) understood that the information in their credit reports could affect their ability to obtain loans and rent housing (fig. 1). However, fewer consumers (36 percent and 33 percent, respectively) understood that their credit histories could affect insurance coverage and premiums or that potential employers could use credit reports when making hiring decisions. We also asked consumers about rules governing access to this information. Specifically, we wanted to determine whether consumers understood when their consent was needed to release their credit reports. For example, while only about one-third of consumers understood that potential employers could use credit reports when making hiring decisions, 61 percent knew that employers could not obtain credit reports on potential or current employees without consent. We also found that 85 percent of consumers knew that anyone who wanted to view their report (not in connection with a product or service) could not do so without their consent. Seventy-six percent knew that someone with a court order had the right to see their report. Fewer consumers—55 percent—answered correctly that someone who needed to view their credit history in connection with a product or service that they had requested could access their credit report without consent. In another study on credit scores and consumer credit, CFA and Providian® found that the majority of respondents—81 percent—knew that mortgage lenders could use their credit history (in the form of a credit score) to determine whether they would receive a mortgage loan and the cost of the loan. Fewer respondents—47 percent—understood the effect of their credit history on decisions made by a home insurer. Forty-eight percent of CFA and Providian’s respondents knew the effect their credit history could have on a landlord’s decision to rent to them. Our survey data showed that 58 percent of consumers had seen their credit reports at some point in time and that 45 percent of this group had viewed them within the last year. Other studies have reported that from 43 to 63 percent of their respondents had seen their credit reports. For example, in a July 2003 study the Federal Reserve reported that 58 percent of consumers had reviewed their reports. We also asked the Consumer Data Industry Association (CDIA)—the trade group representing the CRAs—how many credit reports Equifax, Experian, and TransUnion had provided to consumers in 2003. CDIA told us that 57.4 million credit reports were issued to consumers in 2003. In our survey, we also asked the 58 percent of consumers who said that they had viewed their credit reports whether they had ordered their reports themselves or if someone else had ordered their report for them. Of the consumers who had seen their credit reports, 53 percent said that they had ordered their report themselves, and 47 percent said it had been ordered by someone else for them, including: a mortgage company (29 percent), a bank or financial institution (25 percent), a lender in general (16 percent), a car dealership (12 percent), a credit card company (4 percent), and other source (14 percent). Of the 58 percent of consumers who told us that they had viewed their reports, the largest percentage said that they had seen their reports because they were making a large purchase, such as a car or home, or were refinancing (fig. 3). The credit reporting industry has also collected information on the reasons consumers order their reports. In addition, in 2003, Louis Harris and Associates conducted a study that was designed to determine consumers’ interest in free credit reports and found that: 39 percent of respondents looked at their credit reports because they 31 percent were ready to apply for a loan or credit card, 10 percent had been denied credit, 6 percent were concerned about identity theft, 12 percent had some other reason, and 1 percent did not know why they had seen their reports (see app. III). We also asked consumers who had seen their reports whether they understood the information. The majority of them—79 percent—felt that the information on their reports was very or somewhat easy to understand. Eighteen percent felt that their reports were somewhat or very hard to understand, and 3 percent did not know. We found that most consumers generally understood credit scores but lacked specific knowledge about certain factors that affected these scores. For example, 87 percent of consumers correctly responded that late credit card payments affected scores negatively, and 70 percent knew the general purpose of a credit score. However, fewer—28 percent—could identify a number within an acceptable range of possible scores. And while many consumers were aware of some factors that could affect their scores, such as skipping loan payments, many were also unaware of others, such as the possible negative effect of using all available credit. We also found that although consumers had some knowledge of credit scores, only about one-third had actually obtained them. Before consumers answered any other credit score questions, our survey asked them to define a credit score. About 15 percent of consumers were able to give answers clearly indicating that they knew the definition of a credit score, while about 53 percent of responses were not specific enough to indicate the extent of consumers’ knowledge. Thirty-two percent of consumers gave answers that indicated they either had an incorrect understanding of credit scores or simply did not know the definition. However, when asked to choose the correct definition of a credit score from a list of choices, about 70 percent correctly responded that a credit score predicted the likelihood that a consumer would repay a loan. These correct responses from our survey appear to be higher than those found in CFA and Providian’s 2004 study, which found that 34 percent of consumers answered “true” to the statement that a credit score mainly indicates the risk of repaying a loan. On our survey, we also asked consumers to provide a number that could be a possible credit score. About 28 percent of consumers gave a number within the correct range (between 300 and 900). We also asked consumers questions about the effects of certain factors on credit scores. The mathematical models used to compute credit scores are considered proprietary information, and companies have no obligation to release this information to the public. However, FCRA, as amended by the FACT Act, requires that CRAs disclose to consumers that request the information the key factors that have adversely affected their credit scores. In addition, though not required to disclose its credit scoring models, the Fair Isaac Corporation has published information on five factors that affect credit scores generated using their models (FICO® scores). These factors are: Payment history: Paying bills on time can generate a higher score. Amounts owed: Using all available credit can result in a lower score. Length of credit history: Having a credit history for a relatively long period of time can result in a higher score. Type of credit: Having a diverse mix of installment (mortgages and loans) and revolving credit (credit cards) can generate a higher credit score. New credit: Frequently applying for new credit can contribute to a lower score. According to Fair Isaac Corporation, payment history and amounts owed have the most influence on credit scores (fig. 4). We found that consumers were aware of some of the most basic factors affecting credit scores, like the importance of payment histories. Survey data showed that more than 80 percent of consumers knew that skipping a loan payment or making a late credit card payment could lower their credit scores (fig. 5). Moreover, a majority of consumers (79 percent) correctly responded that having had a credit history for a long period of time could result in a higher score. In addition, 60 percent of consumers knew that frequently applying for credit could have a negative effect on their scores. CFA and Providian’s 2004 study also found that most consumers understood the positive effect of making timely payments (87 percent) and the negative effect of making payments more than 30 days late (60 percent). We spoke with industry experts who said that while consumers generally understood that scores help determine creditworthiness, many consumers were confused by or unaware of various factors that affected credit scores. Our survey showed that while consumers were aware of some factors affecting credit scores, many lacked some knowledge in this area. For example, of the eight questions on our survey pertaining to the factors affecting credit scores, 52 percent of consumers missed three or more. A complete understanding of these factors can be important for consumers who want to improve their credit scores in order to receive approval for credit or obtain a more favorable interest rate. For example, 48 percent of consumers were unaware of the negative effect of using all available credit—the second-largest factor influencing credit scores. It is important for consumers who want to improve their credit scores to understand the multiple factors that affect their scores; for example, that not charging the maximum on their credit cards is almost as important as making timely payments. In addition, about the same percentage did not know that having had a credit history for a short time could lower their score. Consumers who have had credit for a short period of time lack a history of positive credit behavior to balance out possible bad credit decisions. Therefore, these consumers may need additional information on the advantages of making positive credit decisions as they begin establishing credit histories. Finally, around half of consumers did not know that some factors had no effect on credit scores, such as having a low checking account balance or requesting a copy of their credit report. The Federal Reserve’s 2003 study and CFA and Providian’s 2003 study also examined consumers’ knowledge of the factors that affect credit scores. For example, 45 percent of respondents to the CFA and Providian study knew that using all available credit could lower consumers’ credit scores. The Federal Reserve’s July 2003 study reported that around 60 percent of respondents answered “false” to the following statement: “Your credit rating is not affected by how much you charge on your credit cards.” Our survey found that about one-third of consumers had obtained their credit scores, or about half the number of consumers who had seen their credit reports. Fair Isaac Corporation’s 2003 consumer survey found that 31 percent of consumers had obtained their credit scores, and CFA and Providian’s 2004 survey showed that 53 percent of consumers had obtained them. We also asked CDIA for the number of credit score disclosures that the three nationwide CRAs made to consumers in 2003. According to CDIA, approximately 9.8 million credit score disclosures were made in that year. 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, about one-third of consumers correctly responded that CRAs would investigate disputed information for free. In addition, the majority of consumers (94 percent) did not name FTC as the federal agency they would contact with a complaint about a CRA—for example, about an unresolved dispute—although FTC is the federal agency primarily responsible for enforcing consumers’ rights for CRA’s credit reporting. Overall, around 18 percent of consumers said that they had actually disputed information on their credit reports at some point. Some of the most frequent reasons these consumers mentioned for disputing were that the information on the report was not theirs or that the report showed either incorrect payment histories or incorrect late payments. Consumers reported that incorrect information was removed from their reports in about two-thirds of the disputes. Ninety percent of consumers correctly responded that they could dispute information they believed was inaccurate and request that it be corrected. They also appeared to understand the importance of checking their reports for potential errors, though many did not do so. While the majority of consumers (86 percent) said that they should check their reports periodically, only 61 percent of this group reported actually having seen their credit reports. Further, consumers were unclear about some of their specific rights under the dispute process. For instance, prior to the FACT Act, FCRA provided consumers with certain rights when they disputed information through CRAs but not when consumers disputed information with those that had furnished it, such as credit card companies. Yet almost two-thirds of consumers (64 percent) said that they would contact their lender first rather than a CRA to dispute an incorrect late payment on their credit report. Another 18 percent said that they would contact the CRA first, while 13 percent said they did not know whom to contact. The CFA’s 2003 study also found that 64 percent of consumers believed that they had to contact their lender if they found an inaccuracy in their reports or scores. The fact that consumers are more likely to have ongoing business relationships with their lenders and not with the CRAs could help explain these responses. In addition, many consumers were unaware of other details of the dispute process. 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. This lack of knowledge is consistent with what we heard from some in the credit reporting industry—that consumers do not know about the specifics of the dispute process unless they have undertaken it themselves and that they learn the process once they contact a CRA. In commenting on a draft of this report, FTC noted that consumers are provided with the information they need to dispute information when they obtain a credit report from a CRA, because the CRAs are required by law to provide a “summary of rights” with each credit report consumers request. This “summary of rights” explains consumers’ rights under FCRA, including information on how to conduct a dispute, and provides contact information for the FTC and other enforcement agencies. While this requirement provides consumers with information when they request a report from a CRA directly, many consumers do not request reports themselves. Nearly half of the 58 percent of consumers in our survey who obtained their reports said that someone else had done the ordering for them. As a result, these consumers may not have received a copy of the summary of rights and may not have had the information necessary to conduct a dispute or file a complaint about the work of a CRA. We found that approximately 18 percent of consumers said that they had tried to dispute information on their credit reports at some point. To supplement our survey data, we asked CDIA to provide data from each of the three nationwide CRAs on the number of disputes. CDIA found that of the approximately 57 million report requests in 2003, about 12.5 million involved disputes. Our survey data showed that the 18 percent of consumers who disputed did so for a variety of reasons. For example, about 17 percent found items on their reports that belonged to someone else (fig. 6). About 14 percent of consumers disputed for other reasons, including an incorrect payment history (14 percent), incorrect late payments (14 percent), incorrect bill information (13 percent), or incorrect credit card information (13 percent). We also found that about 10 percent of consumers had disputed personal identifying information, such as a name or address. During our survey, consumers gave the following examples of their reasons for disputing information: “They had put the loan on twice”; “They said I hadn’t paid some bill that showed up before I was born”; “It said I was deceased”; and “Wrong address, repossession of a car in California where I have never lived.” In Congressional testimony, industry officials have noted that it is important to address the issue of inaccuracies in credit reports. But they added that many questions that begin as consumer disputes might not be attributable to errors. For instance, they said that consumers might have not understood what kinds of information credit reports could contain and could withdraw a presumed dispute after learning more about the reporting process. These officials also said that a presumed dispute could be something very easy to correct, such as a misspelled last name or wrong address. Based on our survey, of the 18 percent of consumers that had disputed, around two-thirds (69 percent) said that the disputed information had been removed from their credit reports. Another 23 percent said that the information had not been removed, and 7 percent said that they did not know if it had been. In 2003, CDIA testified that it had collected information on the results of consumer disputes and found that data had been deleted in 27 percent of the disputed cases, verified and left on the person’s report in 46 percent of the cases, and modified following the instructions of the entity furnishing it in 27 percent of the cases. CDIA said, however, that these actions could have been updates of information as well as disputes. Our survey results also showed that of those consumers who had disputed (18 percent), about one-third contacted their lender, one-third contacted the CRA only, and one-third contacted both. Of the consumers in our survey who had disputed and had information removed from their credit reports (69 percent), we found that about 72 percent said that the information had not reappeared, although 15 percent of this group were unsure if it had been reinserted. The issue of information being reinserted has been raised in testimony before Congress, especially in cases of identity theft. In addition, FTC continues to receive consumer complaints through its Web site and toll-free number regarding the reinsertion of deleted items in credit files without notice to the consumer. We also found that about one-third of the consumers who disputed information in credit reports chose to add an explanatory statement to their reports, as allowed under FCRA. The CRAs have noted that lenders may take such a statement into consideration when making credit decisions. 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. These factors have a cumulative affect on consumers’ knowledge. For example, a consumer with a college degree, credit experience, and a high income could score much higher than a consumer without these factors. We found that less educated consumers, those of Hispanic origin, those with lower incomes, and younger and older consumers scored lower on the survey than others. At the same time, we found that consumers who had had experience with credit or the credit reporting process, including obtaining a credit report, scored higher. Finally, we found that other experiences, such as having been a victim of identity theft, gender, and residence in one of the seven “free report states” did not have a statistically significant effect on consumers’ knowledge. Our survey results showed that awareness of credit reporting issues generally increased as consumers’ educational level increased. As figure 7 shows, consumers with less than a high school education had a lower mean or average score—measured as the percentage of correct answers to questions designed to test knowledge—overall compared with those with more education (36 percent compared with 63 percent for those with a bachelor’s degree or more). In addition, as educational level increased, consumers obtained reports and scores and disputed more often than those with less education. For example, consumers with less than a high school education had not viewed their credit reports as frequently as their more educated counterparts, especially those with a bachelor’s degree or more (25 percent and 69 percent, respectively). In addition, we found that consumers with less than a high school degree were less likely to know some of the “basics” about credit reporting—for example, that skipping loan payments and making late credit card payments had a negative effect on their credit scores. Specifically, 55 percent of those with less than a high school degree knew that skipping loan payments had a negative effect, compared with 95 percent of those with a bachelor’s degree or more. In addition, although the Internet is one of many possible sources for consumers to obtain a copy of their credit reports, those with less than a high school education were less likely to name the Internet as a source compared with those with a bachelor’s degree or more (10 percent and 34 percent, respectively). Further, government agencies, CRAs, and others use the Internet as a tool to disseminate educational information on credit reporting issues. Consumers with relatively low household incomes also had less knowledge of credit reporting than consumers in higher-income households. For example, those in the lowest household income group (less than $25,000 annually) correctly answered an average of 47 percent of survey questions, while those in the highest household income group ($75,000 or more annually) correctly answered around 63 percent (fig. 7). In addition, the percentage of consumers who had viewed their reports and scores and disputed inaccurate information generally increased with household income level. For example, consumers with household incomes of $25,000 or less were less likely to have viewed their credit reports than consumers in the highest household income group (38 percent compared with 75 percent). We also found that consumers in households making less than $25,000 were less likely than the highest income group to know that their credit history could affect the interest rates lenders offered them (73 percent compared with 89 percent) and that frequently applying for credit affected credit scores negatively (44 percent versus 78 percent). In addition, those in the lowest income group were less likely to name the Internet as a place to go for a credit report than those with household incomes of $75,000 or more (17 percent and 36 percent, respectively). We also found that race/ethnicity had a statistically significant effect on consumers’ knowledge of credit reporting. For example, African Americans and whites scored similarly, showing approximately equal levels of knowledge, while Hispanics scored consistently lower on our survey. As shown in figure 7, African Americans correctly answered an average of 55 percent of survey questions, whites an average of 58 percent, and Hispanics an average of 43 percent. In addition, we found that African Americans and whites were almost equally as likely to have viewed their credit reports and obtained their credit scores but that Hispanics were less likely to do either (fig. 8). More African Americans than whites said that they had ordered their credit reports themselves—65 percent and 50 percent, respectively. Table 1 highlights some specific survey responses for each racial/ethnic group. We found that 84 percent of African Americans and 92 percent of whites knew that skipping loan payments could lower their credit score. And around the same percentage of both groups (about 90 percent) knew that they could dispute information on their credit report. Hispanics had lower scores on both of these questions—63 percent and 78 percent, respectively. However, when asked if race was or was not on their credit reports, Hispanics scored virtually the same as African Americans, though still lower than whites. Finally, we found that more whites (35 percent) named the Internet as a source for obtaining their credit reports than African Americans and Hispanics (18 and 16 percent, respectively). Our survey findings are consistent with information we collected during interviews with federal agencies and other organizations, including the National Council of La Raza (La Raza). Officials at the FDIC, the Office of the Comptroller of the Currency, and FTC told us that their financial literacy efforts are often target certain populations, including Hispanics, that may more often be “unbanked” or less financially literate. Government officials and representatives of other organizations, including La Raza, discussed the need for financial literacy programs among the low-income Latino community. They also told us that some Latinos tend to avoid debt, making them less likely to obtain credit and thus less likely to have experience with credit reports and scores. In our survey, we found that more white consumers had experience with credit-related products than African Americans or Hispanics, with Hispanics having the least amount of experience (table 2). We also found that consumers’ knowledge of credit reporting differed with age and that the youngest consumers (aged 18 to 24) and the oldest consumers (aged 65 and older) scored lower compared with other age groups. The average scores for the youngest and oldest groups were 50 and 49 percent, respectively, compared with an average score of almost 60 percent for all other age groups (fig.7). We also found that experience with the credit reporting process varied by age. For example, 7 percent of the youngest consumers and 17 percent of the oldest consumers had obtained their credit scores, compared with 33 to 48 percent of those in all other age groups. We also found that only 18 percent of those aged 18 to 24 knew that their credit history could affect employment decisions—an issue of particular importance to persons in this age group, who are likely to be engaging in their first job search—while 29 to 46 percent of those in all other age groups knew this. Younger consumers were also less aware that having a credit history for a short time could affect scores negatively, especially when compared with those aged 25 to 34 (41 percent and 61 percent, respectively). Finally, those over age 65 were less likely to say that they should check their credit reports from time to time for possible errors than all other age groups (71 percent versus 88 to 92 percent) and less likely to name the Internet when compared to all other age groups (14 percent versus 29 to 37 percent). Our analysis showed that having had certain credit experiences increased consumers’ knowledge of credit reporting issues. This finding is consistent with opinions from experts in the field of financial literacy, who have noted that consumers who have experience with a financial product or transaction—in other words, those who have been able to “learn by doing”—are better informed about financial products and transactions than those who lack such experience. First, we found that consumers who had viewed their reports, obtained their scores, or disputed information demonstrated more knowledge of credit reporting. For example, we found that consumers who had viewed their credit reports had a higher average survey score (62 percent) than those who had not (47 percent) (fig. 9). Consumers who had seen their credit scores were also better informed about credit issues than those who had not (64 percent and 51 percent, respectively). We found that having had one of these three experiences could increase responses to certain questions by 15 to almost 30 percent—for instance, of those who had obtained their credit reports, 59 percent knew how long information remained on a credit report, compared with 30 percent of those who had not obtained a report. In addition, 76 percent of those who had obtained their credit scores but 52 percent of those who had not knew that frequently applying for new credit could have a negative effect on a scores. Second, we found that consumers who had either obtained an automobile loan or a home loan/mortgage at some point in time scored higher on the overall survey than those who had not had these loans. Specifically, consumers who had experience with these loans—about 74 percent of consumers—scored an average of 58 percent on the survey, while those who had not scored an average of 45 percent (fig. 9). In addition, those who had obtained either an auto or mortgage loan were more likely to view their credit reports and scores and to dispute information on their reports—66 percent compared with 29 percent of those that had not had these loans. Consumers who had had an auto loan or mortgage also appeared to be more familiar with some of the factors that might or might not affect credit scores, such as frequently applying for credit and using most of the credit available to them, than consumers who had not had such loans. For example, 65 percent of those who had had these loans were aware that frequently applying for new credit affected scores negatively, compared with 43 percent of those who had not had these loans. In addition, consumers who had taken out these loans were more likely to know how long information remained on credit reports than consumers who had not (52 percent and 30 percent, respectively). Government and industry officials we interviewed told us that certain experiences—such as having been a victim of identity theft or having requested a credit report because of an adverse action, such as denial of credit—might increase consumers’ knowledge of credit issues. However, in our regression analysis we found that these experiences did not have a statistically significant effect on consumers’ knowledge. Figure 9 shows that consumers who said they had been victims of identity theft (approximately 10 percent of survey respondents) and those who had obtained their reports because of adverse action scored only slightly higher than other consumers. Although we did not see large differences in overall knowledge of credit reporting between victims of identity theft and other consumers, we found that victims of identity theft were more likely to obtain their credit reports (72 percent, compared with 56 percent) and disputed information more frequently (36 percent and 16 percent, respectively). In addition, like all other groups, victims of identity theft did not name FTC as the agency to contact if they had a problem with a CRA, although Congress designated FTC as the agency responsible for identity theft claims. Identity theft complaints to FTC have increased in recent years. We also did not see much difference in overall knowledge between those who had obtained their reports because of an adverse action and those who had not. However, consumers who had experienced an adverse action and requested a report were more likely to order their reports themselves (78 percent) than other consumers (49 percent) and more likely to dispute information (52 percent compared with 15 percent). Finally, we looked at consumers who lived in free report states—one of the seven states where consumers could order a free copy of their credit report annually before the FACT Act was passed (about 21 percent of respondents). Based on our discussions with government and industry officials, we decided to test whether living in a free report state would increase consumers’ knowledge about credit reporting issues compared with those who did not live in these states. But as figure 7 shows, we found that consumers residing in free report states had only slightly higher average survey scores than consumers elsewhere (59 percent compared with 55 percent). As reported by the Congressional Research Service in 2003, TransUnion found in a 2003 study that around 4 percent of consumers in free report states had requested their reports, compared with around 2 percent of consumers in other states. Colorado was the exception, with more than 10 percent requesting their reports, possibly because someconsumers were notified of this right by mail. In our study, 46 percent of consumers in free report states said that they did not know they had this right. We also assessed the effect of gender and employment on consumers’ knowledge. In our regression analysis we found that gender did not have a statistically significant effect. Actively employed consumers scored slightly higher on the survey than consumers in other employment groups. More survey results for these and other factors we looked at are reported in appendix IV. Given that credit reports and the credit scores derived from them impact many important aspects of consumers’ lives, it is increasingly important that consumers understand what is in reports, how reports and scores are used and the potential impacts of both. 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. Although both industry and government agencies have numerous efforts under way to increase financial literacy, our analysis highlights specific areas for targeting educational efforts to increase consumer knowledge of credit reporting. We believe our analysis could help FLEC develop its national financial literacy strategy and Treasury develop its multimedia campaign based on this strategy, as mandated in the FACT Act. At our forum on financial literacy, credit experts agreed that consumers would benefit from more education on credit, including the cost of credit, how to use credit, and how to manage credit responsibly. Without this understanding, it is difficult for consumers to know whether they are receiving the most favorable decisions when applying for credit or how to improve their credit history to achieve higher credit scores. Specifically, it would be beneficial for consumers to know what information is included in a credit report and what information has the greatest impact on credit decisions and therefore would be important to review for accuracy and completeness. Our survey showed that 41 percent of consumers did not review their reports, although periodic reviews are an important step in ensuring the accuracy of credit histories and possibly help mitigate against the effects of identity theft. Further, we do not believe that consumers fully understand their rights under the dispute process, since many did not know that CRAs investigate incorrect information for free or that FTC is the federal agency primarily responsible for enforcing consumers’ credit reporting rights by CRAs, such as in the case of an unresolved dispute. Given the changes under the FACT Act, consumers would also benefit from knowing that they are entitled to one free credit report each year. Our analysis also provides some insight into possible subgroups of consumers that would likely benefit from more targeted education. We found that certain credit experiences—having had an auto or mortgage loan—and some demographic factors—income, education, age, and race/ethnicity—were associated with consumers’ knowledge of credit reporting issues. These results suggest that less educated, lower-income, and Hispanic consumers may not have sufficient knowledge to understand the negative repercussions of a poor credit history, erroneous information on credit reports, or identity theft. FLEC and Treasury will need to use creativity in their national strategy and media campaign in order to reach these groups, going beyond establishing an Internet link to federal resources, because these consumers may not have Internet access. Further, since we found that those with less than a high school education and younger consumers scored lower on our survey, FLEC and others need to consider whether an earlier introduction of credit reporting and other financial concepts, such as in high school curriculums, may begin to address this apparent knowledge gap. Consistent with FLEC’s and Treasury’s mandate under FCRA, as amended by the FACT Act to improve consumers’ understanding of credit reports, credit scores, and the need to dispute inaccurate information, we recommend that: The Secretary of the Treasury, in his capacity as Chairman of FLEC, work with its members to improve consumers’ understanding of their federal rights through FLEC’s national strategy and Treasury’s multimedia campaign, targeting those populations that scored the lowest on our survey—for example, consumers with less than a high school education and relatively low income levels, certain age groups (under 25 and 65 and older), and Hispanics. In targeting certain subpopulations, FLEC should expand efforts to provide financial education on credit reporting issues, for example in high school curriculums and in venues likely to reach Hispanics. 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. We requested comments on a draft of this report from the heads of Treasury and FTC. We received written comments from Treasury and FTC that are summarized below and reprinted in appendixes VII and VIII, respectively. Treasury and FTC also provided technical comments that we have incorporated as appropriate. While not specificially commenting on our recommendations, the Deputy Assistant Secretary of the Office of Financial Education at Treasury stated that the information the report presented would allow them to better understand which parts of the credit reporting system are least understood and channel their efforts to increasing knowledge of those areas. Treasury outlined several ongoing efforts to improve financial literacy and noted that FLEC is in the process of developing a national strategy to promote basic financial literacy and education among all Americans. In commenting on the draft report, the Chairman of FTC stated that the report’s findings were useful to their ongoing outreach efforts and described efforts they have underway to inform consumers of their rights regarding credit reporting. FTC stated that it appreciated the report’s recommendation and, in response, stated that FTC has been engaging in outreach efforts to reach certain groups, such as Hispanic consumers and high school and college students. FTC also emphasized that credit bureaus are to include FTC’s “Summary of Rights” with every credit report provided to consumers, as required in FCRA section 609(c). FTC stated in its comments that the summary of rights tells consumers what they need to know, when they need to know it. Since the summary of rights includes FTC’s contact information, they believe this is reaching the targeted audience—those consumers that requested and reviewed their credit reports from CRAs. While we agree that this information should assist those consumers who request their credit reports, this information may not reach other consumers who have not ordered or reviewed their credit report from CRAs. In this regard, when we asked consumers where they would go to get a copy of their report, only 34 percent said they would go to CRAs. Further, of the 58 percent of consumers that stated they had seen their credit report, only about half said that they had ordered their report themselves and therefore should have received this summary of rights. As we recommended, FTC should encourage consumers to obtain their credit report and credit scores, and if necessary, dispute inaccurate information on their reports. On a related point, FTC stated in their letter that they did not believe our survey results shows that consumers who might wish to complain about a credit bureau would be unaware of FTC’s role and described a variety of efforts for publicizing their enforcement authority. Even with these efforts, our survey showed that only 6 percent of respondents indicated that the FTC was the agency they would contact if they were to file a complaint against a CRA, such as in the case of an unresolved dispute with the CRAs. This finding indicates to us that few consumers are aware of the vital role FTC plays in protecting consumers’ rights in regards to credit reporting and the CRAs. As we recommended, FTC should do more to educate consumers of its role in enforcing these rights. We are sending copies of this report to the Chairman of FTC and the Secretary of the Treasury. We will make copies available to others upon request. In addition, the report will be available at no charge on the GAO Web site at http://www.gao.gov. If you have any questions concerning this report, please contact me at (202) 512-8678 or jonesy@gao.gov or Debra R. Johnson at (202) 512-9603 or johnsond@gao.gov. Other contacts and acknowledgements are listed in appendix IX. The objectives of this report were to examine the extent to which consumers (1) understand and review their credit reports; (2) understand and review their credit scores; and (3) know how to dispute information on their credit reports and actually do so. In addition, this report discusses some of the factors that are associated with consumers’ understanding of these issues. To determine the extent of consumers’ knowledge of credit reporting issues, we conducted a telephone survey of 1,578 randomly-sampled noninstitutionalized U.S. adults 18 and over. This survey was designed to gauge respondents’ knowledge of credit reports, credit scores, and the dispute resolution process, and to estimate the extent to which U.S. consumers have obtained their credit reports and scores or have experienced other credit-related events. The survey data collection was conducted by a private research firm under contract to GAO from late July to early October 2004, shortly before the provision of the Fair and Accurate Credit Transactions Act (FACT Act) that gives all U.S. consumers the right to receive one free credit report a year was implemented. Before and during the design of our survey instrument, we also collected data and testimonial evidence on credit reporting literacy and some general financial literacy issues from relevant federal agencies, industry representatives, non-profit organizations and consumer agencies. To develop survey questions and to provide background and context for our survey findings, we collected and analyzed data from relevant surveys and other studies conducted by several of these agencies and organizations, including the Consumer Data Industry Association (CDIA), the Federal Reserve Board (FRB), the American Association of Retired Persons (AARP), the Consumer Federation of America (CFA), Federal Home Loan Mortgage Corporation (Freddie Mac), Fair Isaac Corporation, members of the Financial Services Roundtable, Jump$tart Coalition, the Congressional Research Service (CRS), and the three nationwide CRAs (Equifax, Experian, TransUnion). Please see appendix III for listing of findings from some of the surveys and studies that were reviewed. Our survey used random digit dialing methods to generate a probability sample of non-insitutionalized U.S. adults aged 18 and older. Analytica Research, in affiliation with Dove Consulting Group, Inc, obtained and dialed 9,784 randomly generated phone numbers from Survey Sampling International. These phone numbers, which include both listed and nonlisted numbers, were generated from “banks” of numbers (the telephone area code, exchange, and next two digits of the phone number) assigned to different regions of the country. To enable GAO to make relatively precise estimates of knowledge and behavior within selected subgroups, we oversampled phone numbers likely to include a relatively high proportion of these subgroup members. The sample was designed to include a relatively higher proportion of responses from (1) the seven states where consumers could receive at least one free credit report per year prior to implementation of the FACT Act, (2) African Americans, (3) Hispanics, and (4) nonminorities with annual family incomes under $25,000. A minimum number of interviews was specified for each of these subgroups. The quotas were achieved in ways that distributed the oversampled interviews naturally across the population. For example, the seven-state oversample was drawn in proportion to the population sizes of each state, and the oversamples for the minority subgroups were spread across geographic areas that had predicted incidences of minorities of as low as 48 percent, so as not to sample in only the most concentrated minority areas. A minimum sample was also set for nonminorities with annual family incomes under $25,000, but no additional oversample was necessary to achieve that target. The 1578 respondents included 300 Black/African American (non-Hispanic) respondents, 300 respondents of Spanish, Hispanic, or Latino origin (Hispanics), 302 non-Hispanic, non-Black/African American respondents with current total annual family incomes of less than $25,000, and 676 nonminority respondents with incomes of $25,000 or greater. In addition, 324 of the above respondents resided in the seven free credit report states—Colorado, Georgia, Maine, Maryland, Massachusetts, New Jersey, and Vermont. Initially, the selection of respondents within each household reached was also randomized. After determining the number of adults in the household who were 18 years of age or older, the interviewer selected the person with the most recent birthday to respond to the survey. This random selection of household members was suspended, however, in some calls to oversampled subgroups when the initially selected respondent was not available for the interview and the person answering the phone met the criteria for the quota. GAO decided that the need to obtain sufficient interviews with subgroup members outweighed the advantages of complete randomness in selecting consumers to interview. To develop areas of inquiry for the survey, we reviewed previous GAO work related to credit reports, agency materials, and previous surveys that asked questions about financial knowledge and credit reporting issues. We considered questionnaires from multiple organizations such as, the AARP, the Federal Reserve Board (FRB), the Jump$tart Coalition, and CFA and obtained suggestions on questions from these organizations based on their experiences. We used these sources and our own analysis to develop an initial set of questions that (1) measured knowledge at varying degrees of difficulty, (2) had one correct answer among several plausible ones, and (3) covered different aspects of credit reporting knowledge (e.g. where credit reports and scores come from, what they are used for, and what factors influence them). In addition, we developed questions about consumers’ experience with credit reports, credit scores, and the dispute process and their perceptions of these documents and processes. For example, we asked consumers if they had obtained a credit report or score, if they had ever disputed information on a credit report, whom they would contact first in the case of a dispute, and whether they believed that their credit report was understandable. In addition to internal review by a GAO survey methodologist, we obtained expert reviews of our draft questionnaire from the FTC, the FRB, the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), Treasury, AARP, CFA, the Fair Isaac Corporation, the three national credit reporting agencies (CRAs), CDIA, and a survey research contractor. The survey also included a number of questions on the respondent’s familiarity with Social Security benefit statements, collected for use in another GAO engagement. The questionnaire was translated into Spanish. To develop the Spanish version, we obtained information on credit reporting issues that had already been translated from various entities. For example, we obtained the Spanish versions of FDIC’s MoneySmart curriculum and Freddie Mac’s CreditSmart curriculum. After our general review, we contracted with the U.S. Department of State to perform the actual translation. After the State Department completed its work, GAO staff reviewed the survey to identify any words that were overly formal or technical, and we made some adjustments to the survey. We further developed and refined the questions by conducting pretests of successive drafts of the questionnaire with members of various demographic groups. Overall, we conducted 17 pretests, including 5 in Spanish. After the questionnaire was programmed for use as a computer- assisted telephone interview script, AOS Inc., one of the two call centers conducting the interviews, conducted a pilot test of over 20 calls to a random sample of U.S. households in late July 2004, and we made final revisions to the questionnaire as a result. See Appendix II for a reproduction of the final questionnaire administered. Interviewers were trained in the use of the questionnaire and background material to answer respondents’ questions about the survey. In addition, bilingual interviewers were available during fieldwork if an interview had to be conducted in Spanish. Data collection on the survey began on July 22, 2004 and ended October 7, 2004. The survey contractor implemented the sample by first conducting a limited number of interviews in a nationwide sample to obtain some minorities, low-income residents, and residents of the seven states with free credit reports, and then began the oversamples of high-minority and seven-state areas to fully meet the subgroup requirements. The quota of 300 low income, nonminority respondents was met in calling in the nationwide and other oversample groups, without an additional oversample being drawn for this group. Calls were made throughout the week at various times to maximize the chance of finding someone at home. A minimum of 10 attempts, at different times and days of the week, were made to call back working numbers that were not answered. In addition to repeated calling, other techniques were used to increase response rates. Messages were left on answering machines for potential respondents offering a toll free number that the respondent could call during business hours. After hours, a recorded announcement requested that the caller leave the date and time for a callback. GAO staff were also available by telephone to answer respondents’ questions and address concerns about the survey. Nonrespondents were offered cash incentives of $10 when recontacted to solicit their participation. To increase participation in the survey, in mid-August a reverse directory was used to identify mailing addresses for 1,417 nonresponding numbers. Postcards were subsequently sent to these households with an appeal to participate when interviewers next called. An additional 537 postcards were mailed in early September. A second telephone survey call center began making interviews in mid-August to complete the fieldwork at a faster rate. We received a total of 1,578 usable responses, for an overall response rate of 48 percent. We calculated the response rate as the total number of usable (complete and partially complete responses) surveys divided by the total eligible sample called. In determining the total eligible sample, we excluded numbers discovered to be nonworking, disconnected, businesses, or otherwise not households with members eligible to be interviewed in one of the sample categories with quotas still to be met. Calls to people in groups for which quotas had already been met were also deemed ineligible. We also assumed that a proportion of those working numbers attempted at least 10 times without an answer were also not eligible. The proportion of eligibility among those not contacted was estimated using practices commonly followed in the survey research industry. That is, the same proportion of eligible respondents found among those phone numbers actually contacted and determined to be eligible or ineligible was applied to numbers not contacted and of unknown eligibility. The cooperation rate for the survey was 59 percent. The cooperation rate measures the success at completing interviews with contacted people who are determined to be eligible. It is defined as the number of complete interviews divided by the total number of complete and partial interviews, refusals, and callbacks that were arranged but not completed. The difference between the response rate of 48 percent and the cooperation rate of 59 percent suggests that the difficulty in contacting anyone at the phone numbers generated was a significant factor in the low response rate, because interviewers were able to convince nearly 60 percent of those they contacted to complete the survey. In addition to nonresponse to the entire survey, respondents could choose not to answer individual questions. This item-level nonresponse was uniformly low in the survey, usually 1 percent or less. Eleven percent of respondents declined to answer the income question, which had the highest item nonresponse rate. Table 3 indicates that call outcomes varied somewhat by sample subgroup. Response rates were somewhat lower among the samples of high minority areas, particularly those targeted to meet the Hispanic subgroup quotas. The same pattern was observed for cooperation rates. The practical difficulties of conducting any sample survey may introduce errors into estimates made from them. These errors include sampling, coverage, measurement, nonresponse, and processing errors. We made efforts to minimize each of these. Because we followed a probability procedure based on random selections, our sample is only one of a large number of samples that we might have drawn, and thus our results are subject to sampling error. Since each sample could have provided different estimates, we express our confidence in the precision of our particular sample’s results as a 95 percent confidence interval around each estimate—for example, plus or minus 10 percentage points. That is, we are 95 percent confident that each of the confidence intervals for estimates in this report will include the true value that we would have obtained had the entire population been surveyed. All percentage estimates from this survey have confidence intervals of plus or minus 6 percentage points or less, unless otherwise noted. Coverage errors in survey estimates can occur from the failure of the sample to adequately cover the actual study population. While our sample included households with unlisted as well as listed numbers, we were able to reach only people in households with telephones, estimated at approximately 95 percent of U.S. households. The randomly generated phone numbers we called do not include cellular phone exchanges, resulting in undercoverage of those households reachable only through cellular phones. In addition, we sampled a higher proportion of some subgroups. To adjust the interviewed sample so that it would be representative of the country as a whole, weights were developed to statistically adjust the contribution each interview made towards the total. Interviews in the 7 states were weighted down so that the proportion of interviews conducted in those states would match the ratio of population in those 7 states to the population of the nation, as determined by the U.S. Bureau of the Census. Similar adjustments were made to the responses resulting from the other oversamples: African Americans, Hispanics, and low-income non-minorities. Additional weight adjustments were made for age and gender to conform to national distributions (app. II and V show the proportion of socio-economic and experience variables of respondents to our survey). We attempted to minimize measurement errors arising from respondents who accidentally or purposely misreported, or from interviewer mistakes in administering the questions. In addition to the quality assurance steps described above in developing the questions so they would accurately measure the concepts of interest, the survey contractor silently monitored some interviews on a daily basis, and provided feedback and coaching to interviewers to improve data collection. In questions that are meant specifically to test the knowledge of the respondent, guessing can result in correct answers by chance and might reflect an artificially high level of knowledge. To counteract this tendency, we explicitly allowed respondents to specify that they did not know answers in our interview and asked multiple knowledge questions to lessen the effects of guessing on our overall analysis of knowledge. We also asked some open-ended questions without categories to choose from. In addition, behaviors such as ordering a credit report or seeing a credit score may be overreported because respondents wish to appear diligent to interviewers or have mistaken one type of information for another. However, others may tend to underreport these behaviors because of a failure to recall distant events, or similarly because they mistake one type of information for another. We have no additional information on the extent or direction of this kind of error. However, we compared our results with those of other surveys and found them to be generally similar. Nonresponse error can arise in the form of bias from not obtaining interviews from nonrespondents who would have differed in their answers from those who did respond. Our response rate of 48 percent, while comparable to or higher than many other telephone surveys of this type, means that we do not know how 52 percent of the population would have responded. We do not know the impact this level of nonresponse has on our results. While this level of nonresponse may affect survey results, GAO believes the overall response rate is sufficient for the conclusions drawn from the results, and can be generalized to the population of U.S. adults age 18 and older. A final source of error is data processing error, or mistakes made in capturing or analyzing the data. In addition to the safeguards and checks built into the Computer Assisted Telephone Interviewing (CATI) software, after the survey, GAO performed checks on the survey data and verified the analysis programming. The reliability of the coding of open-ended answers into categories was assessed by having multiple coders review the same open-ended responses and comparing their answers for consistency. Our survey included a total of 58 questions. The survey questions were created to test consumers’ knowledge of credit reporting issues, obtain their opinions about these issues, and examine their experiences with the credit reporting process. Overall, there were 23 knowledge questions (with 56 associated points) on the survey divided into 3 separate sections: credit report knowledge, credit score knowledge, and dispute knowledge. We also incorporated 22 questions designed to obtain consumers’ opinions about these issues and to examine their experiences with the credit reporting process, as well as 13 demographic questions. In addition, there was one knowledge question that asked consumers about the FACT Act. Most of the questions had pre-coded answers, but some were open-ended requiring unassisted responses. For example, there were 3 open-ended knowledge questions (4, 7, and 43) that asked consumers to provide their own explanation of what credit reporting agencies do, what credit reports are, and what credit scores are. Some of the multiple-choice questions had one part, while others had several parts. If a respondent gave a correct answer to a multiple-choice question or sub-part of a question, we awarded them one point for that question or subpart, respectively. No points were given for an incorrect answer, for refusing to answer, or for an answer of “don’t know.” For the open-ended questions, we first developed and tested the following scoring criteria: a respondent received no points if their response was clearly incorrect or they said they did not know, one point if their response was only partially correct or if their response was correct but vague, and two points if their response was more detailed and fully correct. Then, two team members separately reviewed and scored each open-ended response. After all the responses were scored, a third member of the team separately reviewed the assigned scores and adjudicated any differences in the scores between the other two team members. Based on the 23 knowledge questions, a respondent could earn a total of 56 points; 37 points based on 14 questions on the credit report section, 12 points based on 4 questions on the credit score section, and 4 points based on 4 questions on the dispute section. In addition, consumers could earn 3 additional points by answering one question about the FACT Act. We generated an average or mean score for the survey as a whole. We then analyzed responses for all of the survey questions and scores based on groups of questions for the national sample and cross-tabulated them across different demographic groups and across consumers with different credit-related experiences, see appendix IV for a discussion of these results. In addition, an electronic appendix (app. VI) including additional subgroup results can be found on GAO’s Web site at http://www.gao.gov/ cgi-bin/getrpt?GAO-05-411SP. We also reviewed responses to survey questions about consumers’ experiences and opinions. Differences across demographic groups and across consumers with different credit-related experiences were tested for statistical significance at the 95-percent confidence level. In addition to cross-tabulations, we used a regression analysis of demographic and other factors that we thought would be associated with consumers’ knowledge of credit reporting issues. For a full discussion of the regression analysis, see appendix V. To develop our survey and obtain additional data on consumers’ knowledge and awareness of credit reporting issues, we reviewed existing sample surveys and other studies conducted by other organizations and agencies on financial literacy, credit reports and scores, and the dispute resolution process. We also obtained relevant data from the 3 national CRAs. Surveys and other studies examining financial literacy and credit reporting issues have been conducted by several agencies and organizations, including AARP, FRB, CFA, FTC, U.S. Public Interest Research Group (also known as the National Association of State PIRGs), Fannie Mae Foundation, Freddie Mac, members of the Financial Services Roundtable, Credit Research Center of Georgetown University (CRC), Jump$tart Coalition, CDIA, the 3 national CRAs, and Fair Isaac Corporation. The focus of these studies varies—some examine credit-related issues, such as identity theft; others were conducted for marketing purposes; and others deal with financial literacy in general. For a listing of selected findings from some of these studies, please see appendix III. While we made an attempt to assess the methodology of these studies, we were not able to collect enough information from study sponsors to fully determine the quality of their results. Of the surveys we identified, we included in Appendix III only those which appeared to use a probability- based sample of a defined population. The surveys that met these criteria were typically random-digit dialing (RDD) telephone surveys of U.S. households. Because each survey or other study we chose to report in Appendix III had limitations and risk of error in estimates, we report only selected results for comparative and background purposes. We did not publish detailed results from these surveys because of the possibility of errors that we could not assess. Results from these surveys are best considered in the context of other evidence that might corroborate or disconfirm findings from individual studies. To obtain information on financial literacy efforts in general and on credit reporting in particular, and to obtain organizational experience with the credit reporting process and the credit reporting industry, we spoke with most of the members of the Financial Literacy and Education Commission (FLEC) and other organizations, including FTC, FRB, Chicago Federal Reserve, OCC, FDIC, Office of Thrift Supervision (OTS), Securities and Exchange Commission (SEC), Commodity Futures Trading Commission (CFTC), Social Security Administration (SSA), National Credit Union Association (NCUA), Federal National Mortgage Association (Fannie Mae), Freddie Mac, and the Departments of the Treasury, Labor, Education, Defense, and Agriculture. We also spoke with many industry representatives, including those from academia, nonprofit organizations and consumer agencies such as: The Partnership to Protect Consumer Credit, National Council of La Raza, Financial Services Roundtable, Fair Isaac Corporation, CDIA, AARP, CRC, CFA, Case Western Reserve University, American Savings Education Council (ASEC), and the Employee Benefits Research Institute (EBRI). We conducted our review in Washington, D.C. from March 2004 through February 2005 in accordance with generally accepted government auditing standards. NOTE: Questions used to assess overall knowledge are indicated by a “.” The point value used in the assessment is shown after the star (in parenthesis). Correct responses to these knowledge questions are outlined. 1. Am I speaking to someone who lives in this household who is age 18 or older? 2. How many adults age 18 years or older live in your household? 3. Of these adults, who had the most recent birthday? 4. If I say a company is a “credit reporting agency,” also known as a “credit bureau” or “consumer reporting agency,” how would you describe what they do? (2 points) Verbatim responses are not shown, but analysis of these responses showed that 28% definitely did not have an understanding of what a credit reporting agency does; 53% were at least partially correct and showed a possible understanding (1 point); 19% showed a clear understanding (2 points). 5. To the best of your knowledge, which of the following phrases best describes a “credit reporting agency”? (1 point) a) a company that lends you money—3% b) an organization that helps you get out of debt—4% c) an organization that gathers information about your credit history and provides that information to others for a fee—82% d) a government agency that regulates banks, or—2% e) don’t know—10% 6. Can you name any of the nationwide credit reporting agencies? Correct responses include “Experian,” “Equifax,” and “TransUnion.” Respondents received an additional point if they named “Innovis.” (1 point) (1 point) (1 point) (1 point) Respondent unable to name any credit reporting agencies—67% 7. In your own words, what is a credit report? (2 points) Verbatim responses are not shown, but analysis of these responses showed that % did not know what a credit report was; 63% were at least partially correct and showed a possible understanding of a credit report (1 point); 19% showed a clear understanding (2 points). 8. If you want to see your own credit report, when are you able to order a copy? (1 point) a) at any time for any reason—71% b) only when you are taking out a loan—8% c) only when you have been turned down for a loan—6% e) don’t know—14% 9. Where would you get a copy of your credit report? VERBATIM RESPONSES NOT SHOWN. Responses collapsed into the following categories: the Internet/online (in general)—26% CRA/Credit Bureau (in general)—25% from a bank/financial institution—12% CRA (named specifically)—6% the internet/online (named CRA specifically)—3% from the institution where you applied for a loan—3% credit card companies—1% an 800 number—1% from the government—0% other—3% don’t know—19% 10. Some states have laws that allow residents to receive one or more free credit reports a year. Is your state one of these? (1 point) Did NOT live in state that “Don’t know” 62% 11. If you don’t live in a state that allows residents to receive one free credit report a year, about how much will a credit reporting agency charge you for a copy of your credit report?(1 point) Provided a Correct Response—45% Provided an Incorrect Response—10% Don’t know—% 12. When a credit report is prepared on someone, the information can come from different sources. Please tell me which of the following sources you believe it can come from by answering yes, no, or don’t know. a) from banks and other lenders? (1 point) b) from courthouse and other public records? (1 point) 46% 30% 24% c) from credit card companies? (1 point) d) from debt collectors? (1 point) 13. After you take out a loan, a lender may provide information to a credit reporting agency about the loan and your history of paying it back. How many credit reporting agencies are lenders required to report to? (1 point) d) Don’t know—57% 14. For each of the following items, please tell me if you think it is or is not on a credit report or if you don’t know whether it is on a credit report? a) Social Security number? (1 point) b) bankruptcies? (1 point) c) credit history such as credit card balances? (1 point) d) race? (1 point ) e) income? (1 point) f) a list of those who have requested and received your credit report? (point) g) balances in your checking account? (1 point) 21% 15. If you do not pay your credit card bill, can the credit card company report this on your credit report? (1 point) a) Yes—92% b) No—2% c) Don’t know—6% 16. For about how long does information, such as making a late payment or going bankrupt, remain on your credit report? (1 point) VERBATIM RESPONSES NOT SHOWN. Responses collapsed into the following categories: Provided a Correct Response—47% Provided an Incorrect Response—26% Don’t know—27% 17. Who is permitted to see your credit report without your consent? Please respond by answering yes, no, or don’t know. a) a potential employer? (1 point) b) someone who has a need for your credit history in connection with a product or service that you have requested? (1 point) c) anyone who wants to view it? (1 point) d) someone who has a court order? (1 point) 18. Do you think your credit history can affect the following things? Please answer yes, no, or don’t know. a) your ability to get a loan? (1 point) b) the interest rate you are charged for a loan? (1 point) c) your ability to receive Social Security benefits? (1 point) d) insurance coverage and/or premiums? (1 point) e) whether an employer decides to hire you? (1 point) f) your ability to get a driver’s license? (1 point) g) whether a landlord decides to rent to you? (1 point) 36% 42% 22% 33% 50% 17% 72% 15% 12% 19. Have you ever viewed your credit report? Go to question #26 20. When did you last see your credit report? Was it… a) within the last year—45% b) 1 to 2 years ago—20% c) more than 2 but fewer than 5 years ago—20% d) 5 or more years ago—15% e) Don’t know—1% 21. When you last saw your credit report, did you order it yourself or was it ordered by someone else? Go to question #23 22. Who? VERBATIM RESPONSES NOT SHOWN. Responses collapsed into the following categories: Mortgage company—29% Bank/financial institution—25% Lender (in general)—16% Car dealership—12% Credit card company—4% Don’t remember—4% Family member—2% Employer—1% Other—7% 23. Why was your last credit report ordered? Was it... a) due to an adverse action, such as denial of credit, based on your credit report? b) because you suspected fraud and/or identity theft? 8% 91% 1% c) because you were looking for a job? 1% 98% 1% d) because you were making a large purchase or refinancing, such as a home or car? e) to check for completeness and accuracy? 47% 52% 1% f) for another reason? Please specify. 10% 88% 1% (VERBATIM RESPONSES NOT SHOWN) 24. If respondent provided more than one answer to #23: What was your primary reason? a) due to an adverse action, such as denial of credit, based on your credit report—9% b) because you suspected fraud and/or identity theft—5% c) because you were looking for a job—1% d) because you were making a large purchase or refinancing, such as a home or car—46% e) to check for completeness and accuracy—29% f) for another reason—10% *NOTE: Responses to Questions 23 and 24 were combined to report on primary reasons for all responses: because you were making a large purchase or refinancing, such as a home or car—48% to check for completeness and accuracy—30% due to an adverse action, such as denial of credit, based on your credit report—8% because you suspected fraud and/or identity theft—4% because you were looking for a job—1% 25. Overall, did you find the information on your credit report or reports… a) very easy to understand—37% b) somewhat easy to understand—42% c) somewhat hard to understand—14% d) very hard to understand—4% e) unsure/don’t know—3% The next few questions have to do with dispute resolution. 26. If you feel information on your credit report is wrong, can you dispute, or request that a correction be made? (1 point) Yes—90% No—2% Don’t know—9% 27. Do you think you need to check your credit report from time to time for possible errors? Yes—86% No—10% Don’t know—4% 28. Imagine you are looking at your credit report and see that a lender has incorrectly reported that you have made a late payment. Which of the following would you contact first to dispute this error? a) the lender—64% b) the credit reporting agency—18% c) the Better Business Bureau—4% d) other (please specify)—1% (VERBATIM RESPONSES NOT SHOWN) e) don’t know—13% 29. If your credit report has incorrect information that you want corrected, the credit reporting agency: (1 point) a) will charge you a set fee to investigate the information—9% b) will investigate for no cost—28% c) will charge an hourly rate to investigate the information—2% d) don’t know—60% 30. While they are investigating disputed information, the credit reporting agency is required to do which of the following: a) note the information as under investigation—34% b) notify other credit reporting agencies about the investigation—10% c) do nothing— 6% d) don’t know—50% 31. By law, if you are unable to resolve a disputed item with a credit reporting agency… (1 point) a) you have the right to delete the information from your credit report—5% b) you have the right to add a statement to your credit report—41% c) you cannot do anything—7% d) don’t know—47% 32. If you resolve an inaccuracy on your credit report with one credit reporting agency, will the same inaccuracy automatically be corrected by all credit reporting agencies? (1 point) Yes—20% No—40% Don’t know—40% 33. With which government agency would you file a complaint if you are not satisfied with a credit reporting agency’s work? VERBATIM RESPONSES NOT SHOWN. Responses collapsed into the following categories: Federal Trade Commission or FTC—6% Don’t know 62% 34. Have you ever actually tried to dispute or correct information that you felt was inaccurate on your credit report? Yes—18% No—81% GO TO QUESTION #41 Don’t know—1% GO TO QUESTION #41 35. What type of information did you dispute? VERBATIM RESPONSES NOT SHOWN. Responses collapsed into the following categories: Things that were not mine—17% Incorrect credit card information—13% Incorrect information from a former spouse—3% 36. When was the last time you disputed information on your credit report? a) within the last year—29% b) 1 to 2 years ago—17% c) more than 2 but less than 5 years ago—18% d) 5 or more years ago—36% e) Don’t know—1% 37. Who did you contact to dispute this information? a) the lender—29% b) a credit reporting agency—32% c) both the lender and the credit reporting agency—30% d) some other agency—6% IF YES, PLEASE SPECIFY VERBATIM RESPONSES NOT SHOWN e) Don’t know—3% 38. Was the information determined to be inaccurate and removed from your credit report? Yes—69% No—23% Don’t know—7% GO TO QUESTION #40 GO TO QUESTION #40 39. After the inaccurate information was removed from your credit report, was this information later reinserted? Yes—13% No—72% Don’t know—15% 40. Did you add a statement to your report explaining your dispute? Yes—30% No—66% Don’t know—4% 41. Have you ever been a victim of identity theft? Yes—10% No—89% Don’t know—2% 42. Do you know anyone who has been a victim of identity theft? Yes—29% No—70% Don’t know—1% The next few questions have to do with your credit score knowledge. 43. In your own words, what is a credit score? (2 points) Verbatim responses are not shown, but analysis of these responses showed that % did not know what a credit score was; 53% were at least partially correct and showed a possible understanding of a credit score (1 point); and 15% showed a clear understanding (2 points). 44. OK, so which of the following best describes a credit score? Would you say it is a score that … (1 point) a) measures your knowledge of consumer credit—6% b) predicts the likelihood that you will repay a loan—70% c) measures your total wealth—3% d) don’t know—21% 45. Do you think the following situations affect your credit score in a positive way, has no effect, affects your score in a negative way, or don’t know. a) having a credit history for a short time? (1 point) b) having a credit history for a long time? (1 point) c) having a low checking account balance? (1 point) d) frequently applying for new credit? (1 point) e) making late payments on your credit card? (1 point) f) using most of the credit available to you? (1 point) g) skipping a loan payment that is due? (1 point) h) requesting a copy of your own credit report? (1 point) 15% 12% 49% 24% 43% 29% 24% 11% 10% 60% 19% 15% 12% 52% 21% 21% 50% 10% 19% 46. What do you think a possible credit score, based on someone’s credit history, is? Please provide a number … (1 point) Provided a score within legitimate range—28% Provided a score outside legitimate range—28% Don’t know—44% 47. Have you ever obtained your credit score? Yes—33% No—64% Unsure/don’t know—3% 48. There is a new law that affects your rights regarding credit reports and scores. Which of the following changes will be made? Please respond by answering yes, no, or don’t know. a) all consumers will be entitled to request one free credit report a year? (1 point) b) all lenders must report to all three credit reporting c) agencies? (1 point) the use of credit scores by lenders will be prohibited. (1 point) Now we have a few questions that will only be used for analysis purposes. *Demographic questions #49 through 51 were collapsed for the following results: White—69% Black—12% Hispanic—14% Other—5% 49. Are you of Spanish, Hispanic, or Latino origin? No, not Spanish/Hispanic GO TO QUESTION #51 Yes CONTINUE TO #50 THEN SKIP TO QUESTION #52 Don't know GO TO QUESTION #51 Refused GO TO QUESTION #51 50. You have told us that you are of Hispanic origin. Now I am going to read a list of categories. Please choose one or more of the following categories to describe your race: White, Black or African American, American Indian, Alaska Native, Asian, Native Hawaiian, Pacific Islander, or any other category? Other Please Specify: __________________________ 51. Now, I am going to read a list of categories. Please choose one or more of the following categories to describe your race: White, Black or African American, American Indian, Alaska Native, Asian, Native Hawaiian or other Pacific Islander? Refused 52. What year were you born? 24 and under (at least 18 years old)—13% 25 to 34—19% 35 to 44—22% 45 to 54—18% 55 to 64—12% 65 and older—17% 53. Are you Male or Female? 54. What is the highest grade or level of regular school you have completed? 8th grade or less 9th to 11th *Less than high school—10% 12th Grade/GED/High School Diploma *High school—30% Associate's degree *Some postsecondary education—28%Bachelor's degree (BA; BS) Graduate/professional degree (MA; MS; PhD; EdD: Medicine/MD; Dentistry/DDS; Law/JD; Etc.) 55. How would you describe your current employment status? Would you say you are … Other—5% 56. Different people have different types of financial accounts, investments and loans. We don’t want to know the amounts, but have you ever had any of the following? a) a checking account? b) a credit card? c) an automobile loan? d) a mortgage or home loan? e) a savings account or certificate of deposit? f) a mutual fund? g) stocks in individual companies? h) government bonds? 57. Now for the final question, I am going to read a list of income categories. Which category best represents your total combined income during the past 12 months of all the members of your family? This includes money from jobs; net income from business, tips, farm or rent; pensions; dividends; interest; social security payments; and other income or money received. Less than $25,000—24% $25,000—$49,999—25% $50,000—$74,999—19% $75,000 or more—22% 58. We understand that you would prefer not to tell us your actual income, but could you just confirm if it is less than $25,000 or over $25,000? (For the 10% who refused on Question 57) GAO conducted a literature search to identify some of the relevant non-GAO sample surveys and other studies on consumers’ knowledge of credit reporting issues, the extent to which consumers review their credit reports and scores and their reasons for doing so, and other related matters. We attempted to evaluate the quality of the data and findings of these reports, but the limited methodological documentation available to us prevented a thorough review. We included only those surveys for which we had some indication that a random sample of a known population, typically a nationwide random-digit dial telephone survey of U.S. adults, had been conducted. However, due to possible shortcomings in important design aspects of these studies that are not known, the possibility for error still exists in each of these studies. Therefore, GAO does not consider any one estimate from the following studies to be sufficiently accurate to base conclusions on. However, in the aggregate, these other results may serve as a general comparison to the GAO survey of U.S. consumers and provide a background description of what other researchers have reported on these issues. Using two methodologies—a regression analysis and cross-tabulation analysis—that generally provided consistent conclusions, we found that certain factors were associated with consumers’ knowledge of credit reporting issues. First, we found that having experience with credit—for example, having an automobile loan or a mortgage—and the credit reporting process had a statistically significant effect on consumers’ knowledge of credit issues. In addition, we found that certain demographic factors, such as educational level, income level, race/ethnicity, and age had a significant effect on consumers’ awareness of these issues. Finally, we found that other factors, including gender and residence in one of the seven “free report states,” did not have a significant effect on consumers’ credit reporting knowledge. Our survey results show that awareness of credit reporting issues generally increased as a consumers’ educational level increased. This trend was most evident for those with less than a high school education. As figure 10 shows, consumers with less than a high school education had a lower mean score overall (36 percent) than those with a high school education or more (at least 52 percent). Our regression analysis also confirmed that increases in educational level had a significant effect on consumers’ knowledge. For example, compared with having less than a high school degree, having earned at least a bachelor’s degree could increase scores by more than 13 percentage points. In addition, as educational level increased, consumers obtained reports and scores and disputed information more often than those with less education. Figure 11 shows at least 50 percent of those with a high school education or more had viewed their credit reports, compared with 25 percent of consumers with less than a high school education. Similarly, at least 23 percent of consumers with a high school education or more had obtained their scores, compared with 9 percent of consumers with less than a high school education. Further, those with some postsecondary education disputed more frequently than those with less education (22 percent versus 7–13 percent, respectively). We also found that consumers with less than a high school degree were less aware of credit reporting issues in several areas, including the “basic” questions, than those with more education (table 5). For example, we found that those with less than a high school degree were less able to identify the correct definition of a credit reporting agency (CRA) (44 percent) than those with higher levels of education (74 percent and more). These consumers were also less aware that they had the right to check their credit reports at any time for any reason and less likely to know that skipping loan payments and making late credit card payments had a negative effect on their credit scores. We found that 10 percent of consumers with less than a high school education named the Internet as a source for obtaining their credit report, compared with 24 percent or more of those with a high school education or more. Consumers with relatively low household incomes were also less aware of issues related to credit reports, credit scores, and the dispute process than consumers in higher-income households. For example, those in the lowest household income group (less than $25,000 annually) correctly answered an average of 47 percent of survey questions, while those in the highest household income group ($75,000 and above annually) answered around 63 percent (fig. 10). Our regression model confirmed these results and found that income had a significant effect on knowledge. For example, a consumer with a household income of less than $25,000 per year could score almost 3 percentage points lower on the overall survey than a consumer with a higher household income. The percentage of consumers who had viewed their reports and scores and disputed inaccurate information generally increased with household income level (fig. 12). For example, of those consumers with household incomes of $25,000 or less, 38 percent had viewed their credit reports, 19 percent had obtained their scores, and 10 percent had undertaken the dispute process (fig. 12). In contrast, of those consumers with household incomes of $75,000 or more, 75 percent had viewed their credit report, 49 percent had obtained their credit score, and 24 percent had undertaken the dispute process. Consumers with relatively low household incomes— in particular, those in households making less than $25,000—generally were less aware of issues pertaining to credit reports, scores, and the dispute process compared with those in higher income groups (table 6). For example, consumers in households making less than $25,000 were less likely than those in households making $50,000 or more to know that their credit history could affect the interest rates lenders offered them. In addition, consumers in the lowest household income group were less likely to name the Internet as a place to go for one’s credit report compared with other household income groups (about 17 percent compared with 32–36 percent). Finally, the differences in knowledge between lower- and higher-income consumers were most pronounced for credit scores. For example, 44 percent of consumers in the lowest household income group knew that frequently applying for credit affected scores negatively, compared with 78 percent of consumers in the highest income group. We also found that race/ethnicity was associated with consumers’ knowledge of credit reporting issues. We found that African Americans and whites scored similarly, showing approximately equal levels of knowledge, while Hispanics scored consistently lower on our survey. As shown in figure 10, African Americans earned an average score on the survey of 55 percent, whites had a score of 58 percent, and Hispanics earned 43 percent. The regression confirmed these findings. It showed that being African American rather than white had no significant effect on consumer’s scores but that being Hispanic could decrease survey scores by approximately 6 percentage points compared with whites (holding other variables, such as education and income constant). As shown in Figure 13, we found that African Americans and whites were almost equally as likely to have viewed their credit reports and obtained their credit scores and that Hispanics were less likely to have done either. More African Americans than whites said that they had ordered their credit reports themselves—65 percent compared with 50 percent of whites. In addition, more African Americans (15 percent) than whites (6 percent) said that they had ordered their reports because of adverse action. Table 7 highlights some specific survey responses for each racial/ethnic group, including responses that varied somewhat from overall survey scores. Whites and African-Americans scored similarly on the survey and consistently higher than Hispanics. For example, 84 percent of African Americans and 92 percent of whites knew that skipping loan payments could lower their credit score. And around the same percentage of both groups (about 90 percent) knew that they could dispute information on their credit reports. As shown in table 7, Hispanics scored lower on these questions. However, when asked whether race appeared on credit reports, Hispanics scored virtually the same as African Americans, though still lower than whites. Finally, we found that more whites (35 percent) named the Internet as a source for obtaining their credit reports than African Americans (18 percent) and Hispanics (16 percent). Our survey findings are consistent with information we collected during interviews with federal agencies and other organizations, including the National Council of La Raza (La Raza). The Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency (OCC), and FTC told us that their financial literacy efforts are often targeted at certain populations, including Hispanics, who may more often be “unbanked” or less financially literate. Government officials and representatives of other organizations, including La Raza, discussed the need for financial literacy programs among the low-income Latino community. They also told us that some Latinos tend to avoid debt, making them less likely to obtain credit and thus less likely to have experience with credit reports and scores. In our survey, we found that more white consumers had experience with credit-related products than African Americans or Hispanics, with Hispanics having the least amount of experience (table 8). Our cross-tabulation analysis showed that consumers’ knowledge of credit reporting issues also differed with age and that the youngest consumers (aged 18 to 24) and the oldest (aged 65 and older) were the least likely to have obtained a credit report or score or to have undertaken the dispute process. In the regression, each 1-year increase in the respondent’s age was associated with about a tenth of a percentage point decrease in the respondent’s total knowledge score. The mean scores for credit knowledge for consumers in the six age groups ranged from 49 to 60 percent, with the youngest and oldest groups having the lowest scores (fig. 10). We found that experience with the credit reporting process also varied somewhat by age (fig. 14). For example, 24 percent of the youngest consumers and 42 percent of the oldest had ordered their credit reports, compared with 61 to 74 percent of all other age groups. In addition, 7 percent of the youngest consumers and 17 percent of the oldest consumers had obtained their credit scores, compared with 33 to 48 percent of those in all other age groups. The differences were similar for dispute, with 7 percent of the youngest group and 10 percent of the oldest disputing information in their credit reports; in comparison, 16 to 27 percent in all other age groups reported having disputed information. According to our survey, consumers in the youngest and oldest age groups also knew fewer details about credit reports and scores than those in other age groups (table 9). For instance, 18 percent of those aged 18 to 24 knew that their credit history could affect employment decisions—an issue of particular importance to persons in this age group, who are likely to be engaging in their first job search—while 29 to 46 percent of those in all other age groups knew this fact. In addition, fewer consumers aged 18 to 24—55 percent—and those aged 65 and over—60 percent—could identify the correct definition of a credit score compared with consumers in other age groups (table 9). Younger consumers were also less aware that having had a credit history for a short time could affect scores negatively, especially when compared with those aged 25 to 34 (41 percent compared with 61 percent). In addition, 71 percent of consumers aged 65 and over said they should check their credit reports from time to time, while 88 to 92 percent of consumers in all other age groups said they should. Finally, 14 percent of consumers in the oldest age group named the Internet as a source for obtaining their credit report, while 29 to 37 percent of those in all other age groups cited the Internet. We also analyzed survey results for consumers in different employment groups and found some differences. Specifically, we found that actively employed consumers working either full or part time showed slightly more knowledge of credit reporting issues than any other group answering 59 percent of the survey questions correctly. Students and unemployed consumers (including homemakers, retirees, and those lacking any job) had somewhat lower scores—53 percent for students and 49 percent for consumers who were unemployed. However, our regression analysis showed that students made up the only employment group that had a significant effect and that their employment status could potentially lower their scores by about 3 percentage points. As figure 15 shows, we also found that actively employed consumers were more likely to obtain their credit reports and scores than consumers in other employment categories. However, we found little difference among the percentages of those in each employment group that reported having disputed information on their credit reports. Table 10 highlights some other responses to specific survey questions among the employment groups. Also, more students and unemployed consumers were unable to name any CRAs (84 percent and 79 percent, respectively), while 59 percent of actively employed consumers were unable to name any. Our analysis also showed that consumers who had viewed their reports, obtained their scores, or disputed information demonstrated more knowledge of credit reporting issues. Our findings are consistent with expert opinion in the field of financial literacy. Several experts have noted that consumers who have experience with a financial product or transaction—in other words, those who have been able to “learn by doing”—are better informed about financial products and transactions than those who lack experience. Specifically, as shown in figure 16, we found that consumers who had viewed their credit reports had a higher average survey score—62 percent—than those who had not—47 percent. Consumers who had seen their credit scores were better informed about credit issues, with a mean survey score of 64 percent, while those who had not obtained their scores had a mean survey score of 51 percent. Those consumers who had undertaken the dispute process also demonstrated increased knowledge. Those who had disputed had a mean score of 65 percent, while those who had not had a mean score of 53 percent. Our regression analysis also confirmed that having viewed a report or score or having disputed were associated with an increase in the consumer’s total knowledge score. Each experience was associated with at least a 4 percentage point increase in the total knowledge score. Table 11 shows some of the differences in selected survey responses for those consumers who had obtained their credit reports and scores and had engaged in the dispute process and those who had not had these experiences. We found that having one of these three experiences could increase responses to certain questions by almost 20 percent—for instance, knowing how long information remained on a credit report or that frequently applying for new credit could have a negative effect on a credit score. Second, we found that consumers with certain types of credit experiences, such as having had either an automobile loan or a home loan/mortgage, scored higher on the overall survey and that more of these consumers had viewed their credit reports and scores and disputed information on their reports (fig. 17). As we have seen, consumers who had obtained either an automobile loan or a mortgage—about 74 percent of consumers—had higher overall scores than those who had not (fig. 16). The regression showed that having an automobile loan or mortgage had a significant effect and could increase a consumer’s score by around 4 percentage points. Table 12 highlights some of the larger differences in survey responses between consumers who had had automobile loans or mortgages and those who had not. For example, consumers who had had automobile loans or mortgages were most familiar with some of the factors that might or might not affect credit scores—frequently applying for credit, having low checking account balances, and using most of the credit available to them—than consumers who had not had such loans. Government and industry officials told us that certain experiences, including having been a victim of identity theft or having requested a credit report because of an adverse action such as denial of credit, might increase consumers’ knowledge of credit issues. However, we found that these experiences did not affect consumers’ overall scores. As figure 16 shows, consumers who said they had been victims of identity theft (approximately 10 percent of our survey respondents) scored only slightly higher than other consumers. The regression analysis showed that being a victim of identity theft did not have a significant effect on consumers’ knowledge. Similarly, consumers who had obtained their credit report because of an adverse action scored only slightly higher than those who had not. Although we did not see large differences in the overall knowledge of credit issues between those who had been victims of identity theft and those who had not been, we found that identity theft victims were more likely to obtain their credit reports (72 percent versus 56 percent). In addition, we found that victims of identity theft disputed information more frequently than those who had not had this experience. Of those who had disputed, identity theft victims had information removed from their reports less frequently than other consumers who had disputed (48 percent versus 74 percent) and were more likely to add an explanatory statement. Further, we found that consumers who had been victims of identity theft had more knowledge of certain details about credit reporting than consumers who had not been victims. More—53 percent—knew that correcting information with one CRA did not mean that the others would also make the correction, compared with 39 percent of other consumers. In addition, like all other groups, victims of identity theft did not name the Federal Trade Commission (FTC) as the agency to contact if they had a problem with a CRA, although Congress designated FTC as the agency that handles the identity theft claims of consumers. The number of identity theft complaints filed with FTC doubled every year between November 1999 and 2002, and in 2003 FTC received about 215,000 identity theft complaints. Similarly, we did not see large differences in overall knowledge between those who had obtained their report because of an adverse action and those who had not. However, we found that consumers who had had an adverse action against them were more likely to dispute information. These consumers were also far more likely to order their reports themselves than those who had not had this experience (78 percent versus 49 percent). We also looked at consumers who live in free report states—one of the seven states where residents could order a free copy of their credit report annually before the FACT Act was passed (about 21 percent of respondents). On the basis of our discussions with government and industry officials, we decided to test whether these consumers would have more knowledge about credit reporting issues than consumers in states where free reports were not available. As figure 10 shows, consumers residing in free report states had only slightly higher survey scores than consumers who did not (59 percent compared with 55 percent). The regression analysis showed no significant effect for those living in a free report state compared with those that did not. TransUnion, one of the three nationwide CRAs, found in a 2003 study that around 4 percent of consumers in free report states had requested their reports, compared with around 2 percent of consumers in other states. Colorado was the exception, with more than 10 percent requesting their reports, possibly because consumers were notified of this right by mail under two specific circumstances. Our study showed that 46 percent of consumers in free report states said that they did not know they had the right to order a free credit report. Finally, we assessed the effect of gender (male versus female) on consumers’ knowledge and found that gender did not impact consumers’ knowledge of credit reporting, with males and females having similar overall survey scores—57 percent and 54 percent, respectively (see fig. 10). The regression model also showed that gender did not have a significant independent effect on knowledge of credit issues. In addition, approximately the same percentages of males and females had obtained their credit reports and scores and had disputed information. Further, we found few specific areas in which knowledge differed between genders. Among those we did find, females were somewhat more likely to know how long negative information remained on a credit report (51 percent compared with 42 percent of males) and to say that they had added a written statement to their report after a dispute (38 percent, compared with 21 percent of males). In contrast, males were slightly more likely to know that their credit history could affect the interest rate charged on a loan (85 percent compared with 77 percent of females) and that having had a credit history for a short time had a negative effect on their credit score (54 percent, compared with 44 percent of females). This appendix provides more detail on the regression model that GAO developed to explain how different variables such as education are associated with the survey scores, or the “total credit reporting knowledge scores,” discussed in the body of the report. Such a model can be used to illustrate the influences of different independent variables on the total knowledge score. In the first section, we describe the variables used in the model. In the next two sections, we describe the structure of the model and the statistical results. In the last section, we discuss our interpretation of the regression model. The model includes variables taken from the survey that represent consumers’ experience with the credit and financial system, and consumers’ socio-economic characteristics that might influence consumers’ knowledge of credit reporting issues. Table 13 shows the proportion of socio-economic and experience variables of respondents to our survey. There are many factors that might potentially affect knowledge and this model only considered those that we asked respondents about in our survey. Specifically, the socio-economic variables are: race/ethnicity, age, income, employment status, gender, and education. The race/ethnicity variable tests whether certain racial or ethnic groups systematically score differently on the survey. Age is included because of concerns that younger and older consumers may be less aware of the importance of credit reports and scores. The income variable tests the influence of different levels of a household’s annual income on total scores and the employment status variable tests for the influences of having full- or part-time work, or none at all, as well as being a student. The gender variable is included to determine whether males and females have a different understanding of credit reporting issues. Education levels are included to determine whether consumers’ level of formal education influence total knowledge scores. Several variables reflect factors that we believe could directly affect consumers’ experience with and knowledge of credit reporting. For example, living in a state where consumers receive copies of their credit reports free each year before the passage of the FACT Act is included because we hypothesized that having this right might have encouraged more individuals to look at their credit reports, which could increase their credit reporting knowledge. Similarly, we thought that having had a mortgage or an automobile loan could mean that consumers were more likely to know more about credit reporting issues. We included having seen a credit report or credit score, disputing information on a credit report, and experiencing identity theft to assess the possible influence of these experiences on a consumer’s understanding of credit reporting issues. This multiple regression model is designed to estimate how various independent variables influence the dependent variable – total knowledge score (results are presented in table 14). Evaluating a multiple regression requires considering both the influence of each independent variable on the dependent variable (the total knowledge score, or the percent correct answers) and the statistical significance of the estimates. Total scores are cumulative and represent the sum of the influences of all the independent variables in the model. Much of the data puts consumers into categories (i.e. whether or not one has completed high school or different income categories) and is called categorical data. When categorical data is used for variables there is always a base state and the variable information shows whether the consumer is in or not in that base state. For example, in the case of gender, being female is the base state. Thus being a male increases the total knowledge score on average by about six-tenths of a percentage point as compared to being female. Other binary variables are constructed in a similar manner. Several categorical variables have multiple states. For example, there are four states of education with having less than a high school degree being the base state. In general, a consumer who has completed high school will have about a 9 percentage point increase in his total knowledge score as compared to a consumer who never finished high school, while having completed college increases the total knowledge score on average by about 14 percentage points over the base case. Other multiple state variables are constructed in a similar manner. The model shows that the independent variables explain about 45 percent of the variation in the total knowledge score as shown in the R statistic. Most of the independent variables in the model are statistically significant, and their influences are reasonable. For example, having a relatively high household income or educational level increases the total knowledge score as shown in table 14. For several variables, the influences are statistically significant. If an effect is statistically significant we can reject the null hypothesis that the variable in question has no influence on the consumer’s total knowledge score, i.e. the variable does influence the total knowledge score. In our analysis, a coefficient is considered statistically significant if the p-value for the t-test is less than 0.05. In the following discussion of the regression model, we usually address the statistically significant coefficients. Statistically insignificant coefficients are discussed only when they have important implications. When discussing each variable we assume that all other variables are being held constant. As a result, the coefficient of each independent variable shows, on average, its independent influence on the total knowledge score. The regression shows that socio-economic factors influence scores. The consumer’s race/ethnicity can influence the total knowledge score. For example, in the model Hispanics will score about 6 percentage points lower than whites on average, holding all other variables constant. Age also influences the score with each additional year lowering the score by one- tenth of 1 percentage point. In addition, those with incomes above $25,000 have higher total knowledge scores than those earning less than $25,000 per year. For example, consumers earning between $25,000 and $49,999 scored about 3 percentage points higher than those earning less than $25,000. But only one employment state variable is significant—being a student rather than working full or part time. According to our model, students score about 3 percentage points less on average than those employed full or part time. Finally, knowledge increases with educational levels, so that those who finish high school score about 9 percentage points higher on average than those who have not. We tested how living in a free credit report state, having experienced identity theft, and experience with credit and the financial system can influence total knowledge scores. Living in a free report state and having experienced identity theft had no statistically significant effect on the total knowledge scores. Having a mortgage or an automobile loan increases a consumer’s score by about 4 percentage points on average. Similarly, having seen a credit report raises the total knowledge score by about 5 percentage points. Having seen a credit score increased the consumer’s total knowledge score, on average, by about 4 percentage points, while having disputed a credit report increased the consumer’s total knowledge score by about 5 percentage points. These increases in scores are consistent with a belief that increased experience with credit and credit reporting improves the consumer’s knowledge of these issues. A multiple regression shows the simultaneous and cumulative influences of all the independent variables on the total knowledge score. In contrast, cross-tabulations show differences in average total knowledge scores for different populations and do not allow the independent influences of various factors to be separated. The average scores from the cross- tabulations reflect the cumulative influences of all the independent variables. For example, consumers from high-income households are likely to also be highly educated and to have a car loan or mortgage. Thus their average score is generally higher than scores for those with lower household incomes because of the positive influences of several variables. To illustrate this tendency, we constructed two “straw” consumers and used the statistical model to predict their total knowledge scores as reported in table 15. In constructing our two “straw” consumers and showing how their total knowledge scores vary based on differences in the values of the independent variables, we are assuming that our model is reasonable and representative of consumer behaviors. Consumer 1 is a 25-year-old male Hispanic with a household income of less than $25,000 a year, who does not have a high school degree, does not have an automobile loan or mortgage, and has no experience with credit reports or scores. Consumer 2 is also a 25-year-old male Hispanic, but with at least a college degree, an automobile loan or mortgage, and some experience with credit reports and scores. The model allows us to determine the influences of the independent variables on the total knowledge scores for each of these consumers. According to the model, consumer 1 would score about 33 percent, while consume 2 would score about 63 percent. Changing the race/ethnicity of both consumers to white raises the scores to about 39 percent and 69 percent, respectively. The differences in the scores reflect the effects of a number of individual variables. This document presents survey data for all respondents, as well as cross- tabulation results for demographic and other subpopulations of respondents, and can be found on GAO’s Web site at http://www.gao.gov/ cgi-bin/getrpt?GAO-05-411SP. The following are GAO’s comments to FTC’s letter dated March 4, 2005. Referring to our finding that respondents did not understand that resolving a dispute with one credit bureau would not result in automatic correction of the inaccuracy in every credit bureau’s file, FTC suggested a clarification. FTC stated that FCRA “requires that information corrected by a consumer in the file of one of the three national credit bureaus be automatically corrected with all three bureaus” (citing FCRA sections 623(b)(1)(D), 611(a)(5)(D). We believe that FTC overstates the effect of these provisions. First, except for information obtained fraudulently or through identity theft, FCRA does not require a CRA to notify other CRAs that information in its files is inaccurate or incomplete. Instead, the process described by FTC depends upon furnishers to notify CRAs of corrections to disputed information. Specifically, under section 623(b)(1)(D), if a furnisher receives notice from a CRA that information the furnisher provided has been disputed by a consumer, the furnisher must conduct an investigation and, if the furnisher finds the disputed information to be incomplete or inaccurate, the furnisher must report the finding to all nationwide CRAs to whom the furnisher provided the information. Because of these provisions, a dispute with one CRA generally should result in the correction of the disputed information maintained by the other CRAs. However, this would occur only if all of the CRAs obtained the disputed information from the same furnisher. Section 623(b)(1)(D) does not address situations where CRAs obtained the disputed information from different sources. Moreover, if a furnisher has gone out of business, the process under section 623(b)(1)(D) would not ensure that erroneous information the furnisher gave to multiple CRAs would be corrected where a consumer initiated a dispute with only one CRA. Assuming that the CRA could not verify the information, it would have to be deleted. The CRA is not required to report the deletion to other CRAs. With respect to section 611(a)(5)(D), we note that the section requires CRAs to establish an automated system that furnishers may use to report findings of incomplete or inaccurate information to other CRAs, but it appears that a furnishers’ use of this system would be optional. In addition to those named above, Allison M. Abrams, Davi D’Agostino, Jason A. Bromberg, Emily R. Chalmers, Marc W. Molino, Mona E. Nichols, Jennifer R. Popovic, Mitchell B. Rachlis, Carl M. Ramirez, Terry L. Richardson, Sidney H. Schwartz, Paul G. Thompson, and Wendy B. Wierzbicki also made key contributions to this report. We also acknowledge the GAO staff that provided invaluable assistance translating our survey into Spanish, Roberto R. Piñero, Benjamin A. Fenderlein, Josie H. Sigl, and Dan Garcia-Diaz. Special thanks to Heather T. Dignan, Jack E. Edwards, Marion A. Gatling, Richard J. Hillman, Harry Medina, George A. Scott, and Richard M. Stana.

Summary: 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. 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.