If you’re working on Capitol Hill, you may have joined us Tuesday for our webinar on credit markets and personal credit history.
In line with that topic, there’s good news on the horizon for consumers concerned about the effect credit scores have on the terms they’re offered from a lender. Starting in January of 2011, the federal government will require lenders to give notice when a poor credit score results in a higher interest rate. From the Washington Post:
The rules require lenders to alert consumers whenever derogatory credit data cause them to be charged higher rates, higher down payments or less than optimal terms on a “risk-based pricing” system.
It used to be that a bad credit score didn’t mean a high interest rate – it meant you didn’t receive a loan at all. Consumers would then have the opportunity to find out why they were denied, and could appeal the decision to the lender – especially if the decision was due to an error on your credit report.
Modern credit technology changed all of that:
But with the rapid spread of risk-based pricing systems, fewer applicants were formally declined for loans; lenders simply raised rates to handle the perceived higher risk.
Though this expanded the availability of credit to those who may not have received it previously, it also meant you were less likely to find out if your credit score resulted in a higher rate until well after the paperwork was signed.
The Fair and Accurate Credit Transactions Act of 2003 set out to change that. Because of this law, you can access your credit score once a year from each of the three major credit agencies (Experian, Equifax, and Trans Union). And, starting in 2011, this new provision will ensure you know what effect your credit score has had on a loan’s interest rate before you‘re committed.
Of course, if you’re interested in improving your credit score, or in understanding your credit report, Econ4U has many resources available.
2 Comments
Does anyone have any idea to what extent, that actual full transparency in credit scoring computation itself is being pushed? Isn’t it past the time that these reporting agencies are allowed to concoct their scoring voodoo in secrecy with only vague hints of how individuals’ personal and business actions factor into the results of credit scoring algorithms and equations? Although it is encouraging to see changes in transparency between lender and borrower, is no one questioning how we have arrived at this point of allowing a handful of private agencies to hold the power of credit lending profit and borrowing costs over virtually everything, without basic disclosure of the exact operations of these underlying credit scoring engines?
Just look at the differences in the conflicting scoring factors from one agency to the next on your credit report, or a Trilegiant quarterly report. One would think the FTC would be all over this, but maybe the American consumer just hasn’t reached the level of consciousness about it to demand it yet.
Glad to see these new rules will be coming on this year. I just found another post by Ken Harney about the credit score transparency http://www.mortgagematch.com/news/application-process/credit-score-and-loan-pricing-transparency-coming-soon-1455/