Your credit record affects many important aspects of your financial and personal life, such as your ability to get a mortgage or car loan, get and keep employment, open bank accounts, and even rent an apartment. Therefore, it is crucial that you know what is on your credit record and ensure it is accurate and up-to-date. After all, this is the same information that creditors will examine to help decide whether to approve your loan request.
You probably already know you are entitled to a free copy of your credit report from each of the three major credit reporting companies, Equifax, Experian, and TransUnion, once every twelve months. Generally, it is a good idea to request these reports and scan them for errors and discrepancies. Until recently, however, the actual data that creditors use to approve or turn down credit remained largely a mystery. But two rules enacted recently shed light on this process.
The first is the Risk-Based Pricing Rule, adopted by the Federal Reserve Board and the Federal Trade Commission under the provisions of the Fair Credit Reporting Act. This rule, which went into effect at the beginning of 2011, requires an agency to provide you an oral, written, or electronic notice, called a Risk-Based Pricing Notice when you are accepted for credit, but the interest rate is less favorable than those extended to other consumers. Consumers who receive such a notice are allowed to obtain a free credit report in order to verify the correctness of the information.
As an alternative to providing the notice, a creditor can provide you with your credit score, the date on which the score was calculated, and contact information for the agency that provided the score. The creditor must also inform you of adverse information on your credit record that factored into the creditor's decision, such as owing too much debt, or late payments.
The second rule, effective as of July 2011, affects you if you are turned down for credit. In this case, the creditor is required to provide an Adverse Action Notice that indicates the specific reason(s) the credit request was denied. The notice must also indicate your credit score, the date on which the score was calculated, contact information for the agency that provided the score, and factors that affect the score. The notice must also indicate where you can obtain a free copy of your credit report within 60 days of receiving the notice.
These rules apply to a variety of creditors, such as banks, mortgage and car lenders, department stores, and public utility companies that use credit records to decide whether to extend credit. These rules should help you identify adverse information on your credit record so you can correct errors and work to improve your credit record.
For more about these new rules and detailed information about your credit score, visit FICO's website, scoreinfo.org.
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