One wonders all the time by our readers if they have the right to obtain a free credit score. So far, the answer has been "No". But thanks to a provision of the Act Wall Street Reform and Protection of Dodd-Frank consumers, from tomorrow, the answer is "sometimes." The new rule requires that whenever lenders use a credit score is transforming consumer for a loan, give them a higher interest rate than the best available, or increase their interest rate, the lender must send the consumer the score they used to make this decision. In addition, the lender must give the consumer a bit more information about the partition. Here is what lenders must specifically indicate:
- The credit score
- credit score Source
- credit score Date
- the possible range of scores for the given type of score
- Up to four key factors that have negatively affected the score (five if the number of credit applications affected the score)
- information contact for the credit score source
We are in favor of a rule requiring greater disclosure to consumers about their credit. After all, if your credit and it can cost you tens of thousands of dollars in interest payments or more during a loan, should not you know what it is? We therefore believe that this new rule is a good step. However, the credit reports from the world credit scores is extremely complicated and confused and believe that this rule can only add to the confusion. We have reviewed the requirements of the new law and found several areas that we believe to be the consternation of cause for consumers to get their scores. Here are three that concern us most:
1. While the rule mandates that consumers receive their credit score and the range of possible scores under the brand credit score used, it does not require that the consumer receives a qualitative explanation of whether their score is good or bad. We believe that this is analogous to taking a test and since your numerical result, say 70, but not say that the curve is. So you do not know if 70 is an A or F. With credit scores, if you said that your score is 600, you do not know whether good, bad or ugly. Of course, you are given the range of scores, but you can not use it to put your score in context. In fact, if you try, what would be a reasonable thing to do, you can usually come up with a result that is wrong. For example, the range of FICO scores, the most popular brand and well known credit score is 300 to 850. One might assume that the midpoint of this range, 575, would be an average credit rating. Although this seems a reasonable assumption, it is completely wrong. In fact, 575 is well below average, is classified as "Not Good" by FICO, is well below the sub-prime threshold and it would be difficult for anyone with that score to get any credit! Of course, FICO's just a credit score brand and different brands have different ranges and scales for what is good and bad, which brings us to another problem with the new rule ...
2. Consumers are not aware that there are many different types of credit scores and the score they receive almost certainly be different from another partition, they find elsewhere. The Federal Reserve and the FTC cited "information overload" to explain why they did not feel it necessary to disclose such information. While I certainly agree that it is easy to get overwhelmed by the uncertainties of credit ratings, in this case, it seems like a more apt description would be "a bit of information is dangerous." The reality is that different credit score brands use different scales and different numbers that are a good or bad score. For example, the Vantage score, a popular brand created by the three credit bureaus uses a scale of 501-990. Let's say you receive a Vantage score of 750 and go online to try to understand what that means. If you do a search such as "what is a good credit score", you find lots of information indicating that 750 is a very good to excellent score and will in most cases you qualify for the best rates on a loan. Although you do not know very well why you do not have it will get the best rate the lender that sent you the score, you always think, Hooray! I have a lot of credit! the only problem is that all these research results speak for a FICO score of 750, not a Vantage score. in fact, 750 Vantage score is just average, you will almost never qualify for the best rates and in many cases prevent you a loan at all.
3. consumers are given a credit and do not say to all score marks, they have three different credit scores, one for each credit bureau. everyone has three different credit reports, one in each of the three credit bureaus: Experian, Equifax and TransUnion. Your credit score is based on credit reports, if you have a different score for each credit bureau too. Most people think that these scores will be exactly the same, but they are usually different. Sometimes they are very different. In fact, many lenders and collection agencies account to a desktop so that each office has different information in your credit report. Since negative information can have a huge impact on your score, your score of an office could be very different from another. I know from personal experience when a cable company sent a very old mistake, closed account of my collections and my Equifax FICO score dropped 114 points while my scores from the other offices has not changed! (Fortunately, I subscribe to a credit monitoring service, so I was alerted to this change in my credit report and score and was able to get it fixed in a few days.) Unfortunately, the new regulations require only lenders to give consumers a credit score, even if they used the three scores by taking the credit decision. If they are used exclusively high or low score, lenders must provide this specific game, but if they have used the average score (a very common practice among lenders), then the lender may send the consumer either three scores they select. Using myself as an example, if a lender sent me the TransUnion FICO score, I would not have been able to understand why I'm such a bad loan rates, because I have no way to know that he was my Equifax score was bringing my average down.
Make no mistake. We believe that consumers will be better when the rule takes effect tomorrow than they are today without her. But we also believe it is very important for consumers to understand the limitations of the information they receive and if they do not, they can end up being a victim of the old adage that a little knowledge can be a dangerous thing.
So how can you arm yourself with more knowledge? Here's what we recommend :.
Check your credit score and credit reports a few months before you plan to apply for a loan Why wait until you are denied credit or given a higher interest rate to where your credit stands? Knowing your score in advance, you can correct errors on your report, start working on improving your score if necessary and have a better understanding of the fact that you could get approved for a loan or not. Just for credit will probably lower your scores so you would not aggravate the situation by asking for a loan or credit card you have no chance of being approved.
Know the qualitative descriptions of your score such as "Super", "fair", "A" or "C", and how your score is related to the general population. Unlike free credit scores you will receive under the new rule, good sources for credit scores will give you a description of your scores such as "Super", "Good" or "Bad" or letter grade (AF). They also often give a percentile (such as "your credit score is better than 60% of consumers"). Unfortunately, credit scores are not available completely free with no strings attached. You can get them for free mostly with a free trial a credit monitoring service. We highly recommend both Identity Guard Total Protection and PrivacyGuard, offering scores and reports from all three bureaus, detailed explanations of your scores, recommendations on how to improve your score, the current score and report updates, many other functions of protection against identity theft, and a non-obligation 30-day free trial or $ 1. If you do not cancel before the end of the trial period, you start to be charged a monthly fee ($ 14.99 or $ 16.99 per month). 30 days should be plenty of time to know if you think it's worth the price. you can also buy your credit score for a total of somewhere like myfico.com, which sells your actual FICO scores Equifax and TransUnion for $ 19.95 each (thus $ 39.90 for both). The main problems we have with the purchase of MyFico are the high price and the fact that you can not buy your FICO score Experian. We recommend that you know all three scores.
Never rely on the free credit score that lenders are required to provide when you turn down for a loan or giving you a suboptimal rate for full image your credit. This free result is a piece of a much larger puzzle. We strongly recommend that you get all three scores and explanations from a reputable supplier.
Do not look at the negative factors affecting your score that lenders that you turned down or given you a suboptimal levels are required to provide. In our view, this is probably the most valuable information you will receive in this new view. These factors provide a good starting point for how you can improve your credit.