This is my third and final installment of Credit Predictions for 2011 and I’ve saved the best for last. After taking a look at credit cards and real estate in 2011, this week I’m going to bring you up to speed on the “goings on” in the world of credit scoring, as it applies to 2011. Believe it or not, there is news worth reporting regarding YOUR access to YOUR legitimate credit scores.
Where Did We End 2010?
We ended 2010 pretty much where we started it, which isn’t saying much. Companies continued to bury consumers with confusing and misleading advertising in an attempt to get consumers to claim conditionally “free” credit reports and scores, only to find out a few weeks later that they really had signed up for a subscription credit monitoring service. It had gotten so bad that the CARD Act, legislation designed to protect consumers from credit card companies, included language mandating overt disclosure on the freebie credit report websites redirecting consumers to the actual site where you can claim your federally mandated, legitimate free credit reports: http://www.annualcreditreport.com/.
Unfortunately, that part of the CARD Act was poorly worded and didn’t really solve the problem. Why not? It didn’t solve the problem because the companies that were marketing free credit reports simply started charging $1 for them, in their minds exempting them from the new CARD Act disclosure requirements. I guess it’s not a free credit report if you charge $1 for it.
Additionally, the CARD Act requirements don’t cover websites that market free credit SCORES (rather than reports). As such, now we’re stuck seeing ads for free scores instead of free reports. And still, none of it is truly unconditionally free.
Where Can I Get My Legit Credit Score For Free?
Here’s where the good news starts. While there’s no place you can go and claim the actual score your lender is using for free, there are existing and new laws that help to ease the pain.
The Fair Credit Reporting Act was amended in 2003 by a series of new provisions called FACTA (Fair and Accurate Credit Transactions Act of 2003). FACTA and FCRA are now one and the same, and the acronyms are used interchangeably. FACTA is the law that gave us www.annualcreditreport.com. It’s also the law that began making credit scores available to consumers, for free.
For those of you who financed a home in the past five years, you should dig out your closing paperwork. You were given a document likely called the “Credit Score Disclosure” at or before closing. This is a FACTA requirement that states any lender who uses credit scores to underwrite a mortgage loan must give us a copy of the information.
And while nobody in their right mind is going to apply for a mortgage loan just to get access to their legitimate credit scores, it’s a nice byproduct for those of you who are actually buying houses these days. The downside to this rule…it only applies for mortgage loans.
But that’s not all….
Even Better News
As of January 1, 2011 FACTA was amended yet again with another set of rules that will lead to more consumers getting access to their legitimate credit scores, for free. If you apply for any sort of credit and the lender approves you, but not at their best terms, then there’s a chance you’ll be given the score they used to make their decision. This approval is called an “adverse approval.” You weren’t declined, but you were not given the best deal they had to offer.
The rule is actually designed to educate consumers that lenders use what’s called “risk based pricing” and have variable offers depending on your level of credit risk. All lenders use credit reports and scores as a way to determine credit risk and set your terms. I’m not sure we needed an amendment to the FCRA to teach people that but nobody asked me.
Lenders can comply with these new rules one of two ways. They can either send you a letter stating that you didn’t get the best deal because of your credit report OR they can send you the score they used to make their decision. I’m hoping most of them choose the score option, but only time will tell. Finally, these rules don’t seem to apply to insurance companies or utility providers, so they’re not perfect.
But wait: there’s even more.
The Best News!
While the new rules don’t guarantee us across-the-board access to our legitimate credit scores for free, another major law goes into place in July 2011, which almost does. This is the FACS Act (Fair Access to Credit Scores Act), which is part of Fin Reg (or “Dodd-Frank”). The FACS Act is a product of Sen. Mark Udall from Colorado and takes the FACTA rules to the next level.
Essentially, the FACS Act says that ANY time a consumer’s score is used to decline or adversely approve ANYTHING, the consumer must be given a copy of that score. This means if you’re declined any sort of credit, insurance, housing, OR if you’re adversely approved for credit, assessed a deposit for your utilities or have to pay a higher insurance premium because of your credit score, then you’re going to get to see it.
The FACS Act is very simple, which all but eliminates any loopholes. It also places the burden of the score disclosure on the shoulders of the score purchaser (bank, insurance company, etc), which means the credit bureaus aren’t involved. The only people who won’t get their scores are folks who get approved at the best deal the lender or insurance company has to offer. And while it would be nice for everyone to have access to their legitimate scores for free, I’ll take the FACS Act every day of the week and twice on Sundays.
The bottom line, 2011 is going to be a good year for consumers with respect to their ability to finally gain access to their legitimate credit scores for free, without having to sign up for credit monitoring.
John Ulzheimer is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and the author of the “credit history” definition on Wikipedia. He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry. He has served as a credit expert witness in more than 70 cases and has been qualified to testify in both Federal and State court on the topic of consumer credit.