Under the Fair and Accurate Credit Transactions Act (FACT Act), which became effective December, 2004. The big three credit reporting agencies (EquiFax, Experian, and TransUnion), are required to make your credit reports available to you free once a year.
The program was not rollouted all at once, it was broken up into four phases. If you lived in the Western part of the US, you were first (December, 2004) to get your free credit report. Then the central Northern and Southern parts of the were second and third (March and June, 2005). The east coast just came online as of September 1, 2005...
The reason for the free credit reports, is to allow consumers to discover errors or other problems in their credit reports (such as identity theft). If problems are found, consumers can place alerts on their credit files, to notify potential lenders, that their identity has been compromised and to proceed with caution when granting lines of credit.