Free Credit Scores Thanks to Dodd-Frank Consumer Protection Act
On July 6th 2011 the Federal Reserve Board and the Federal Trade Commission issued final rules regarding the credit score disclosure regulations within Dodd-Frank. These new rules serve to finalize the requirements of the Fair Access to Credit Scores Act of 2010 championed by Senator Mark Udall (D-CO), which will be part of the July 21, 2011 effective date of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Consumers will now enjoy unprecedented free access to their actual credit scores in most cases as defined below.
Credit score disclosure is required by lenders under these conditions;
– All consumers who apply for credit where a credit score is used to set the material terms of the credit account. (if the lender uses the “Credit Score Disclosure” notice option form)
– A consumer applies for and is denied credit based on a credit score.
– A consumer applies for credit and is approved but with less advantageous terms, a practice commonly referred to as Risk Based Pricing.
– A consumer has an existing account with a credit card issuer and the APR is increased based on a credit score.
– A consumer applies for a mortgage loan (this has applied since 2004)
Credit score disclosure is NOT required if…
– A consumer applies for insurance, utilities or rental housing and the score used is not the same style of score used by lenders to make loan-specific decisions. This does not constitute a “credit score” as defined by the Fair Credit Reporting Act.
– A lender bases a decision solely on a “proprietary score”, which is a score that is developed by a creditor for their use only (versus those built by FICO or VantageScore). The exception is if the proprietary score uses only information from a credit bureau, then it must be disclosed.
– A lender uses multiple scores that meet the definition of a “credit score.” In that case the lender has the option to choose only one of the scores rather than all of the scores.
In addition to the score disclosure the consumer will likely be given information about the score range, from which credit bureau the score came, where they rank nationally, and how to obtain a copy of their credit report for free.
The score disclosure may not clearly identify the “brand” or type of score the lender used to make their decision so the consumer will have to rely on the disclosed score range to determine what score was used. If the range is 300 to 850 then a FICO score was used. If the range is 501-990 then a VantageScore was used.
John Ulzheimer is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a Contributor for the National Foundation for Credit Counseling. He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry. Follow him on Twitter here.