Starting later this month, if you’re denied for a loan or don’t qualify for the best interest rate, the lender must send you a free copy of the credit score it used to arrive at its decision.
The new rule, which will go into effect on July 21 as part of the broader financial regulatory overhaul, will apply to credit cards, auto loans and student loans. In other words, it will apply to any type of credit-related decision that uses information in your credit report. (Lenders must continue to provide free credit scores to all mortgage applicants, even if you get the best loan terms available.)
But you won’t be entitled to any and all credit scores, a term that tends to be used pretty loosely. For instance, if a utility had its own special “utility” score, and that score led to its decision to require a security deposit, the utility would not be required to disclose that score. Ditto for telephone or insurance companies that use special scores other than the type used by lenders. But let’s say landlords used FICO credit scores and decided that they wanted several months of rent in advance. In that case, landlords would be required to disclose what score they used.
“It’s not applicable unless it’s the same score that a lender could use to underwrite a loan or some form of credit,” said John Ulzheimer president of consumer education at SmartCredit.com.
Consumers who are denied or “adversely approved” — that is, approved but not at the best rates — will receive the free scores through a notice from the lender. If a borrower’s existing loan terms were changed for the worse, they would also receive a notice with a free copy of the score from their lender.
The notices may vary, depending on whether you were simply denied or received less than perfect terms, but they must all generally include some basic information: the range of possible credit scores, major factors that hurt the score, the date the score was created, where you rank nationally, as well as the name of the person or entity that provided the credit score or the credit file that was used to create the score. It must also provide information about how to get your credit report.
While the lender doesn’t have to say what type of credit score it used, Mr. Ulzheimer said, you’ll be able to figure it out because lenders are required to provide the score’s range: FICO is based on a 300- to 850-point scale, while the VantageScore, created by the three major credit bureaus, ranges from 501 to 990. In both cases, the higher the score, the better the credit rating.
Some lenders, however, will continue to comply with the law by sending notices – with scores — to all borrowers who receive credit.
The new rules should demystify at least one component of the lending process. If you receive a copy of a free score, let us know if you found the notice helpful and what other type of information you would like to receive.
