Banks will have to reveal credit score if application is denied or downgraded
Many people will recognize it: that dread sinking feeling in the pit of your stomach when your mortgage, auto loan or credit card application is refused. It’s almost as bad when a bank quotes a range of loan or credit card rates in its promotional literature, and you end up with a rate that’s uncomfortably high. You ask yourself: What have I done wrong now?
Credit score information disclosure to improve
Well, soon lenders will be required to tell you what they think you’ve done wrong. Your loan or credit card application may still be turned down, and your credit card rates may still be high, but at least you’re going to know why.
That’s because last year’s Dodd-Frank Wall Street Reform and Consumer Protection Act requires lenders to disclose information about your credit score and credit report when they either refuse your application or charge you rates above the norm. On July 6, the Federal Reserve published the rules that cover this disclosure, and they are due to go into effect 30 days after they’re published in The Federal Register. The Fed says that publication “is expected soon” so it’s likely they could apply starting some time in August.
Get your credit report before you apply
According to FICO, whose scoring system is used by many credit bureaus, the number of recent credit inquiries you have made can have an impact on your credit score. So if you’re wanting a new credit card, you probably shouldn’t start with your dream one, and work your way down your list of preferences until you finally get accepted. All those credit inquiries could drive down your score, and stop you getting one that you might have qualified for before you began the process.
Instead, you should look at your credit report first, and then apply for a card that you stand a good chance of getting. By law, you’re entitled to one free credit report every year, but–with 50-70 percent of credit reports containing errors, not to mention the prevalence of identity theft–many prefer to pay to monitor their reports as often as they like.
Credit score issues remain
These credit report monitoring services can be valuable for many. However, it seems that there are sometimes discrepancies between the scores consumers pay to access and the ones that lenders actually use. That’s why, according to a July 6 report in The Wall Street Journal, the Fed is planning to publish a study later this month that should examine how these discrepancies come about, and perhaps how they can be eliminated.
On July 21, the new Consumer Financial Protection Bureau is due to take over responsibility for regulating credit scores and reports. It’s yet to be seen how effective the CFPB is going to be, but one area that’s on its agenda is the difficulty that many encounter when they try to correct errors in their credit reports. For more information on this subject, see IndexCreditCards.com’s “Credit report inaccuracies can ruin your life” and “Five rules for fixing credit report errors.”
Credit reports important
Of course, credit scores and reports fulfill an essential role in our society, not only allowing lenders to avoid dodgy borrowers, but also protecting those people who are, in financial terms, their own worst enemies. However, the systems that credit bureaus employ have had serious flaws, and many may welcome the steps that are now being taken to correct those.
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