Buyers Denied Loans will Get Free Credit Scores

From: Bloomberg

U.S. consumers denied a credit card or auto loan will be entitled to free copies of their credit scores starting today.



The Dodd-Frank financial overhaul law passed last year expands credit-score disclosure rules and places the responsibility on financial companies to provide the numbers. It also forces lenders to give free scores to consumers who don’t get the best rates when borrowing, a practice known as risk- based lending.

“The purpose for the law was to provide consumers with greater access to and information about their credit scores,” Senator Mark Udall, the Colorado Democrat who proposed the provision, said in an e-mail. “By seeing the clearest picture possible of their personal finances, consumers can actively work to improve their scores,” Udall said in a statement earlier this month posted on his website.

The rule applies to financial-services companies that use scores to make loans. The most common scores are based on models established by Minneapolis-based FICO, formerly known as Fair Isaac Corp. (FICO), which are used to gauge a consumer’s financial health. The numbers, which range from 300 to 850, affect the ability to get mortgages, credit cards and insurance products, as well as the rates borrowers pay for them. Under current laws, all consumers are entitled to free annual credit reports, not their actual scores.

CFPB Report

“The law will affect credit-related transactions that occur tens of thousands of times every day,” said John Ulzheimer, president of consumer education at Costa Mesa, California-based SmartCredit.com, which offers consumers credit scores, monitoring and identity protection. It’s “something consumers have wanted and have not had the ability to execute for near 50 years now since credit scoring has been used.”

The rule also requires that a credit score be accompanied by the four main reasons why the number wasn’t higher, such as delinquent accounts, Ulzheimer said.


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The Consumer Financial Protection Bureau, which begins formal operations today, is responsible for ensuring that lenders comply and give consumers who are denied credit or don’t get the best rates free scores. President Barack Obama nominated Richard Cordray earlier this week to head the bureau, which was created by the Dodd-Frank legislation. Jen Howard, a spokeswoman for the CFPB, declined to comment on the credit disclosure law and how it will be implemented and enforced.

Consumers may be unaware of the variety of credit scores available and may purchase a score thinking it’s their only “true” score, according to a report released July 19 by the CFPB. This could negatively impact them “if the credit scores the consumer buys give a substantially different impression of his or her credit risk than credit scores that a lender would use,” the report said.

Customer Notices

When Capital One Financial Corp. uses a credit score to determine an interest rate or decline an applicant, it will disclose the score in a notice to the consumer, said Pam Girardo, a spokeswoman for the McLean, Virginia-based bank.

Wells Fargo & Co. (WFC) said it had plenty of advance notice about the rule and was able to implement the necessary changes to provide scores, said Erin Downs, a spokeswoman for the San Francisco-based bank.

JPMorgan Chase & Co. (JPM), the second-largest U.S. bank by assets behind Bank of America Corp. (BAC), is “prepared to support new regulatory disclosure requirements,” said Steve O’Halloran, a spokesman for the New York-based bank.

American Express Co., the biggest credit-card issuer by purchases, will be disclosing credit scores and related information in notices when a score is used to decline an application for a credit or charge card, reduce the account limit or cancel the account, said Leah Gerstner, a spokeswoman for the New York-based company.

Custom Scores

Since 2004 mortgage lenders have had to provide credit scores to borrowers who are turned down, said SmartCredit.com’s Ulzheimer.

It’s unclear whether the rule also will apply to so-called custom credit scores used for non-lending, such as renting an apartment or purchasing insurance, according to Chi Chi Wu, an attorney at the National Consumer Law Center in Boston. Landlords and insurance providers may use custom scores derived from credit reports, which may not be covered by Udall’s provision.

Any lenders that use traditional FICO scores, such as student-loan companies or credit-card issuers, will have to supply scores to consumers, said Ulzheimer. The score is used by 90 of the 100 largest U.S. financial institutions, according to FICO’s website.

Wrong Assumption

A FICO score of 760 is considered an “elite credit score,” according to Ulzheimer, who said that any number at or above that figure would likely mean a borrower gets the best interest rate offer.

The average rate for borrowers with credit scores of 700 for a 5-year new car loan is 5.48 percent, yet those with scores of 700 or better can shop around and qualify for rates as low as 2.5 percent, said Greg McBride, senior financial analyst for Bankrate.com, the North Palm Beach, Florida-based website that tracks bank products.

Some consumers incorrectly expect that they’ll get their credit scores when obtaining their free annual credit reports at annualcreditreport.com, according to Liz Weston, author of “Your Credit Score.” Consumers can receive free copies from each of the nationwide credit bureaus, Equifax Inc., Experian Plc and TransUnion Corp., once every 12 months.

“People assume their credit scores are free because they get free annual access to their credit reports, and they don’t understand the difference between the two,” she said. A credit report contains information such as borrowers’ addresses, public records and payment history.

‘Right Step’

Consumers who aren’t entitled to free credit scores under the rule will have to pay $19.95 on myFICO.com for a FICO credit score and report.

Giving some consumers free credit scores is “a step in the right direction” toward transparency in consumer finance, said Udall, the Colorado senator.

“We already require that consumers be provided a free annual credit report,” he said. “I think we ought to go all the way and allow consumers to access their credit scores for free as well.


8 Secret Credit Scores (you might not have even heard about).


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New Credit Score Rules Pose New Complications

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by: ANNAMARIA ANDRIOTIS from: SMARTMONEY

Starting this week, consumers who are denied credit or good terms entitled to see their credit scores!

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This week, consumers will finally be entitled to an explanation from lenders who offer them sky-high interest rates or deny them credit altogether. But critics say borrowers are still being left in the dark.


Part of the financial reform bill, the new rule kicks in on Thursday and says that any borrower who is denied credit or offered a higher-than-usual interest rate is entitled to see his credit score without even having to ask. The rule is supposed to wipe out much of the secrecy surrounding the lending process and give consumers the information they need to get a better deal in the future. And for the most part, this is the first time ever that consumers will have such access, says John Ulzheimer, president of consumer education at SmartCredit.com, a credit-monitoring site. Right now, consumers can't see their credit score for free except when they apply for a mortgage.


But critics say the rule has enough loopholes that the required information may leave consumers more confused than they are now. "We're concerned," says Chi Chi Wu, a staff attorney focused on consumer credit issues at the National Consumer Law Center. "What we would have liked to see is clear rules."


At its most basic, the information consumers receive could be confusing. Lenders are required to send applicants their scores if they are offered a rate that's higher than what the lender offers many of its customers, Ulzheimer says, but there's no way for consumers to know what the typical rate is. If a lender offers a high rate to everyone, an applicant isn't entitled to see his score.


And then there are several situations in which the rule gets bent. If a bank uses only its own scoring system with its own data to evaluate a borrower, it doesn't have to send that score to the consumer. If a bank uses its own scoring system in conjunction with a traditional credit score, the bank only needs to disclose the latter. The problem, experts say, is that if a bank is using a proprietary scoring system, a traditional credit score may not give consumers enough information about why they weren't given the best possible offer.


There are other industries that use credit scores to evaluate applicants but will mostly fall outside of the new rules. Car and home insurance companies routinely use an "insurance score," which takes into account an applicant's credit score and his insurance history those scores are exempt from the new rule. Utility companies also use their own scoring system, part of which includes a standard credit score, and they are likely to be exempt. But landlords may not be, if they use a consumer's credit score as a reason to deny them an apartment or to request a larger security deposit, says Ulzheimer.


For their part, the banks say that sharing their proprietary scores would be more confusing than helpful. Because banks' scoring systems are different, comparing among institutions is nearly impossible, says Nessa Feddis, senior counsel at the American Bankers Association. And the insurance industry says the credit score is only a small fraction of their evaluation process and that insurance scores are far more complicated than an applicant's credit history.


Despite the complications, consumer advocates do say having at least some idea of your credit score is better than none. "This is a learning opportunity," says Linda Sherry, director of national priorities at Consumer Action. "It will give people a practical example of how credit matters when they need to borrow money."


NEXT POST: Don't Worry, Employers Are NOT Going TO See Your Credit Scores !!!

The Medical Debt Responsibility Act May Aid Consumers.

8 Secret Credit Scores (you might not have even heard about).


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Don't Worry - Employers Are NOT Going To See Your Credit Score

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Finally!! An accurate piece about credit scores and employment by: Janet Aschkenasy

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Yes or No: Can banks look at your credit scores when making a decision on whether or not you would make a good employee in their organization?

If you thought "yes" you would be wrong.

“This is the number one myth with respect to credit scoring,” consumer education and credit expert John Ulzheimer, told eFinancialCareers.

“Employers in most states are able to look at credit reports as part of their pre-employment screening but they can’t see the credit scores.

Trouble is, many people confuse the terms credit "report" and credit "score" and believe they are the same thing. “It’s a prevalent myth because a lot of people use the terms interchangeably. Yet, all three credit bureaus have gone on record time and again saying that they do not provide credit scores on the credit reports sold to employment screening companies.”

So, what is the difference anyway? You might be surprised:

A credit report is basically a listing of your credit accounts and payment history, month by month. If you’ve been late with payments, it will show how late: 30 days or 60 days, for instance. If you’re being courted by collection agencies, that will be included. If you’ve filed for bankruptcy, or have bank judgments or liens against you, your credit report will show that as well.

Clean credit reports are easier.

The fact is, however, that many folks who’ve have just about tapped out their credit cards—and may have poor credit scores—will present clean-looking credit reports, so long as they’ve been getting their minimum payments in on time.

A consumer might conclude their credit report looks good or even great because of a lack of anything derogatory. “However if you've got too much credit card debt, too many inquiries, and a poor mix of different types of accounts,” that same person’s credit score could be average—or even worse.

Credit scores focus largely on your payment history and how much debt you’ve accrued.

And for scoring purposes, lenders like a borrower to diversify and have a portfolio of secured debt like home equity lines of credit and auto loans, together with unsecured forms of debt like credit cards, where there is nothing to show for the loan in question, and less incentive to pay it off. FICO scores range between 300 and 850, with under 620 considered risky. So, how come banks and other financial institutions that commonly dig into prospective employees’ credit reports can’t obtain credit scores, as well?

“Credit scores were never built to predict prospective employee quality. The tool is not designed to evaluate employees so all three credit agencies—Equifax, TransUnion and Experian—have chosen to not sell a credit score along with the credit reports they sell for employment screening,” says Ulzheimer, who has worked both at FICO and Equifax over the course of his career.

Prospective employers do make liberal use of credit reports, however, since federal law permits that. And employers are most apt to delve into prospective workers’ (or even current employees’) credit reports in an industry like banking or even human resources where employees have access to sensitive information.

“You are representing the company and the company is somewhat liable for your actions,” says Ultzheimer. “They have to be comfortable with you before they give you the keys to the kingdom.”

Since 2003, it’s been easy for consumers to access their credit reports once ever 12 months, and yet 96% of these reports go unclaimed, says the credit expert. The one legitimate source for free credit reports is annualcreditreport.com, says Ulzheimer.

Besides getting a peek at your report, what else can you do if you’re concerned about poor credit plaguing your employment search?

You might try debt counseling: “The National Foundation for Credit Counseling is probably the most recognized and legitimate of the credit counseling agencies, says Ulzheimer.

“It is truly non-profit, and for a fee of $25 to $50 a month they will work with creditors to facilitate a debt management programs for you that can forgive a portion of the interest and a portion of the fees you are paying.”

“That’s a lot less than some of these other vultures will charge you,” he adds.


NEXT POST: The Medical Debt Responsibility Act May Aid Consumers.

8 Secret Credit Scores (you might not have even heard about).



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Credit Scores Will Be Easier for Consumers to get with New Rules from Federal Reserve, FTC www.Chicagotribune.com

Credit Scores Will Be Easier for Consumers to get with New Rules from Federal Reserve, FTC
www.chicagotribune.com

Consumers who are denied credit or whose existing loan terms become less favorable will soon be able to get free credit scores under new rules from the Federal Reserve Board and Federal Trade Commission.

Read the rest of the article here: http://www.chicagotribune.com/business/ct-biz-0708-credit-score-20110708,0,5422211.story


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Fantastic information. This is worth watching:

Medical Debt Responsibility Act May Aid Consumers: MyFoxATLANTA.com