Editorial Policy

New Rules Entitle Borrowers to More Free Scores

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By Eva Norlyk Smith, Ph.D.
July 21, 2011

As of July 21, 2011, consumers who apply for a loan and receive a less than ideal offer based on their credit score are entitled to a free copy of their score, thanks to new regulations recently released by the Federal Reserve Board and the Federal Trade Commission.

U.S. consumers have long been entitled to receive a free copy of their credit report once a year. However, consumers have generally had to pay to get a copy of their credit score.

Now, according to the new rules, consumers who apply for credit and get turned down will have free access to their credit score if the bank used the score as a factor in their lending decision.

And it gets better. Consumers who apply for credit and are offered a loan or a credit card with less than ideal terms based on their credit score are also entitled to a free copy. That includes people who apply for a credit card or loan and are offered less attractive terms than applicants with better scores.

In addition, cardholders whose credit card issuers increased their credit card APR as a result of their score can also expect a free copy of their credit score. Consumers are already entitled to free access to their credit report and credit score when they apply for a mortgage.

Many credit professionals applaud the new Fed rules, pointing out that it is often difficult to get a full picture of your credit situation based on the credit report alone.

“Just looking at the credit report, you can’t tell what your credit is,” says Sandy Shore, a Credit Counseling Supervisor with Novadebt, a nonprofit debt management service. “Many people assume that as long as they pay their bills on time, they have excellent credit. Seeing one’s credit score can be a real eye-opener.”

According to Shore, many consumers don’t realize that there are many other components of FICO scores other than payment history, including credit utilization, variety of credit lines and length of credit use. For such consumers, getting turned down for a loan is often the first indication that something is amiss.

“If they had a copy of their credit score, more people would know where they stand and could make corrections accordingly,” says Shore.

Since there are many types of credit scores and many lenders use multiple scores to make a decision, which credit score will you receive? That’s up to the lender. Banks and other lenders using multiple scores can choose which score to disclose. And if they use a proprietary score developed for its own use, the lender is not required to disclose the score, unless the proprietary score uses information from one of the three credit rating agencies, Transunion, Equifax or Experian.

The new rules are part of the Dodd-Frank Wall Street Reform and Consumer Protection Act passed by Congress last year.

(Article updated 7- 21-2011. Originally published 7-19-2011.)