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.