A Free Credit Score Followed by a Monthly Bill

By RON LIEBER

On television it’s hard to miss the wildly popular band of slackers singing ruefully from a shabby apartment or while waiting tables in pirate regalia. The ruined credit that led to their financial misfortune might have been sparkling if only they’d tracked their status on freecreditreport.com.

The Federal Trade Commission is not amused. It has long believed that the company that owns freecreditreport.com is deliberately diverting people from a government-mandated site where consumers can get free credit reports by law, and using the reports as a lure for a $14.95 monthly service that alerts subscribers to important changes in their credit status.

In an unusual salvo, the government has even produced its own spoof videos featuring a trio remarkably similar to the gang in the earlier commercials, singing a warning: “Other sites may turn your head; they say they’re free, don’t be misled. Once you’re in their tangled web, they’ll sell you something else instead.”

But while the government has taken issue with the ads, it has had little to say about credit monitoring services themselves, a rapidly expanding niche approaching $1 billion in sales for which millions of people have signed up, often unwittingly. The problem, say critics, is that most people really don’t need it.

Credit monitoring provides customers with real-time updates about changes to their credit files that might affect how lenders see them. These services can be useful for identity theft victims, for example, who want e-mail alerts about new accounts that thieves might have opened in their name.

Yet for the vast majority of consumers whose credit status doesn’t change quickly or drastically, a monitoring service is a waste of money, these critics say. Keeping a close eye on your bills and checking your credit report several times a year is enough.

And that can be done without spending a penny because the government requires the three major credit bureaus — Experian, which owns freecreditreport.com, Equifax and TransUnion — to provide one free report annually to consumers.

“Does the average person really need to see their credit reports more than once every four months? Do you need to look at it daily?” asked Edgar Dworsky, founder of ConsumerWorld.org and a former member of Experian’s consumer advisory panel, referring to credit monitoring services. “That’s paranoia.”

While other companies sell credit monitoring too, Experian is the biggest player in the lucrative niche of selling monthly monitoring. Nine million people are spending a total of $650 million to $700 million annually on the services, according to Carter Malloy, a Stephens Inc. analyst. Experian’s market share is more than twice that of its three main competitors combined. To replenish its rolls, the company relies heavily on its slacker ads, spending $54 million in 2008 to blanket the airwaves, according to TNS Media Intelligence.

The monitoring business is profitable enough that big credit card companies, including Capital One and Discover, now partner with Experian to sell private-label versions of the monitoring service directly to their customers, taking a cut of the fees and giving the rest to Experian.

So far, the F.T.C. has focused mostly on the free credit report come-on. In the last five years, Experian has paid $1.25 million to settle F.T.C. charges that it misled consumers who may have been seeking their free credit report at AnnualCreditReport.com, but ended up paying for a subscription on the similarly named freecreditreport.com.                                    continued here.