When it comes to your credit, the more you know, the better.
Recent changes in federal law are aimed at helping you do just that.
Since the beginning of the year, creditors have been required to notify consumers when their credit report has been used to provide them credit on less-favorable terms than other consumers.
If you receive a risk-based pricing notice, then you can request your credit report for free to check the report's accuracy. As an alternative to the notices, creditors may provide credit applicants a free credit score and information about that score.
Risk-based pricing happens when a lender sets or adjusts the interest rate and terms of credit provided to borrowers based on their creditworthiness. Previously you weren't getting a notice of the change because it wasn't an adverse action if you accepted their offer. Now they have to tell you that you're getting a higher interest rate because of your credit history.
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Expect More Information
More changes are coming in the form of the "adverse action rule," which is scheduled to take effect on July 21, 2011 as a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
After July 21, creditors will be required to disclose credit score information to consumers when a credit score is used in setting or adjusting credit terms. Previously there was a credit-score disclosure requirement, but it only applied to when you financed a house. The rule makes the credit-score disclosure requirement applicable in any lending situation when there is an adverse action. The changes add content to risk-based pricing notices, provide new model notices and specify technical requirements regarding credit score disclosures.
A New Resource
Despite the new information requirements, many consumers, unfortunately, do not know how much money a bad credit score takes out of their pockets when they use a credit card or take out a car loan.
Take a $20,000, 60-month car loan. A borrower with a bad credit score could pay about $5,000 more in interest than someone with a good score, according to the new website www.creditscorequiz.org.
This convenient resource for consumers takes the form of an online 22 question quiz created by the Consumer Federation of America and VantageScore Solutions. It's easy to do, and worth the effort.
Take action
As a consumer of credit services, remember that there have been recent changes aimed at increasing the transparency of the credit-decision process, and more are coming.
Take a moment and test your knowledge of your credit report and credit score at the newly available resource www.creditscorequiz.org. Then think about strategies for managing your credit scores: not missing payments, avoiding high credit balances, and minimizing numerous new applications, all of which are used to calculate credit scores. Look at your credit report to see which ones are most appropriate to you. And be aware that there is a high cost to having a low credit score.
