Credit

New Law Will Make Credit Scores More Available to Consumers

A few weeks ago I wrote an article for Mint that pointed you to a couple of websites where you could claim a free credit score.  Here’s the article if you want to catch up.  Now on July 21, 2011 consumers will begin to see their actual credit scores under several very common scenarios.  Here’s the back story…

In March 2010 Senator Mark Udall (D-CO) introduced the Fair Access to Credit Scores Act of 2010.  The Act was swept up in the legislation referred to as the Dodd-Frank Wall Street Reform and Consumer Protection Act, which means it becomes effective July 21st.  And, on July 6th the Federal Reserve Board and the Federal Trade Commission issued final rules regarding the credit score disclosure regulations, which clarified the conditions under which consumers would have access to their credit score.  Here’s an overview…

Credit score disclosure is required by lenders if…

- A consumer applies for credit, gets approved and a credit score is used to set the material terms of the account.  This applies if your lender choses what’s referred to as the “Credit Score Disclosure” notice as a way comply with the new rules.

- A consumer applies for credit and is denied credit based on a credit score.  You’ll get a declination letter and your score as well as information about where you can claim your free credit report used by the lender to make their decision.

- A consumer applies for credit and gets approved but with less advantageous terms compared to the terms other approved applicants were given.  This is a practice commonly referred to as Risk-Based Pricing.

- A consumer has an existing account with a credit card issuer and the annual percentage rate is increased based on a credit score.

- A consumer applies for a mortgage loan.  This has actually been a requirement since 2004 but I wanted to throw it in here just to remind you.

IMPORTANT:  Every one of the 5 scenarios above is automatic. You do not have to ask your lenders for your scores.  They must send them to you proactively.  This is significantly different from the free credit report rules, which require YOU to ask for your federally mandated free credit reports.  This means you should keep your eyes open for letters from your lenders because they may have your credit scores included.

Credit score disclosure is NOT required if…

- A consumer applies for insurance, utilities or rental housing and the score used is not the same style of score used by lenders to make loan-specific decisions.  This does not constitute a “credit score” as defined by the Fair Credit Reporting Act and only credit scores are required to be disclosed.

- A lender bases a lending decision solely on a “proprietary score”, which is a score that is developed by a creditor for their use only (versus those built by FICO, for example). The exception is if the proprietary scoring model uses only information from a credit bureau to generate the score.  If so, then it must be disclosed.

- A lender uses multiple scores that meet the definition of a “credit score.”  In that case the lender has the option to choose to disclosure only one of the scores rather than all of the scores.

In addition to the scores the consumer will likely be given information about the score range, from which credit bureau the score came, where they rank nationally compared to other consumers, and how to obtain a copy of their credit report for free.

The score disclosure may not clearly identify the “brand” or type of score the lender used to make their decision so the consumer will have to rely on the disclosed score range to determine what score was used.  If the range is 300 to 850 then a FICO score was used.  If the range is 501-990 then a VantageScore was used.

Welcome to a new era of credit score disclosure.  It’s a good week for consumers!

John Ulzheimer is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a contributor for the National Foundation for Credit Counseling. 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. The opinions expressed in his articles are his and not of Mint.com or Intuit. Follow John on Twitter.