New Rule Provides Credit Scores to Consumers Who Are Denied Loans
Starting July 21, more consumers will have free access to their credit scores. New rules require lenders to tell consumers their scores if their credit applications are denied. Other factors considered in the decision will also be explained.
Financial institutions will automatically send out "Risk-Based Pricing Notices" to members or customers who were denied loans. The notices will provide consumers with their credit scores, the name of the reporting agency that provided the score, how to contact the agency, and factors that may have contributed to a low score.
The new guidelines are meant to help consumers make better educated decisions about their finances.
All U.S. credit scores fall somewhere between 300 and 850, according to the credit information group Experian
. The average American has a score of around 678.
In related news, the Consumer Financial Protection Bureau
has completed a study on discrepancies between the credit scores provided to consumers via a free yearly credit report or paid credit score service and the scores used by lenders and other businesses to judge a customer's creditworthiness. The study found that many consumers believe they only have one credit score when there are actually a range of credit scores, from a variety of sources, available. Not all of those scores are used by both consumers and lenders.
Discrepancies in credit scores could cause consumers to apply for loans for which they are not qualified, possibly resulting in the payment of pointless application fees and a lowering of their credit score. Inconsistent scores could also result in consumers underestimating their own creditworthiness and accepting poorer loan terms, such as higher interest rates.
The CFPB is planning to "quantify the differences between the credit scores available to consumers and those used by creditors" in a follow-up study. The pending study will also provide more details on how discrepancies in credit scores can affect consumers.
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