When will the new rules take effect requiring lenders to give people their credit score for free? What do I have to do to qualify for a free copy of my credit score?
Although you’ve been able to get a free copy of your credit report from each of the three credit bureaus for several years now (available at AnnualCreditReport.com), you generally would’ve had to pay extra to get a copy of your credit score. (A credit score translates a credit record into a single number that helps lenders assess the likelihood that a borrower will repay a loan). That’s about to change. Starting July 21, lenders will be required to reveal your credit score if you are denied credit or are charged a higher interest rate because of your score.
Although the new rule -- a result of last year’s financial services reform law -- will disclose important information to borrowers, it could also cause some confusion. The law requires lenders to provide the version of the score they used to set the terms and rates for the specific loan -- which can be very different from the more familiar FICO score. “There are dozens and dozens of FICO scores in use right now,” says John Ulzheimer, president of consumer education for SmartCredit.com. For example, mortgage lenders, auto lenders, and retailers who sell big-ticket items on an installment basis may all use slightly different calculations based on specific risk criteria. The specific score that the lender used may be slightly different than a FICO or other credit score that you’ve looked up recently, which could lead you to believe your score has dropped when in fact the lender is using a different algorithm to come up with its number.
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The new credit score disclosure rules don’t require a lender to give details on the calculations used to determine its score, but it must reveal some information that you can use to assess where you stand. The lender must let you know the score scale -- the highest and lowest score -- and up to four factors that adversely affected your score, such as high balances or late payments. It must also let you know if a high number of credit inquiries affected your score (your score could be lower if several lenders have asked to see your credit report within a short period of time if you’ve recently applied for a loan).
“This is a positive step to help consumers better understand how their credit history can be viewed by lenders,” says Maxine Sweet, of credit bureau Experian. “Consumers may be confused by the many different scores, but it’s important for them to focus on where they fall in the range of risk for the model used and what factors in their credit history caused them to be considered a higher risk.”
Instead of providing credit scores only to those who were negatively affected, lenders may start providing credit scores to everyone who applies, says Ulzheimer. That could help more people see how their credit history stacks up, even if they have a good score.
It’s a good idea to know your credit score before you apply for a loan, though, so you can figure out how to boost your score and qualify for a better rate. You can obtain your score for about $7 to $9 when you get a free copy of your credit report at www.annualcreditreport.com. Experian and TransUnion provide your VantageScore -- a score created by the credit bureaus -- and Equifax provides an Equifax version of the FICO score. Or you can order your FICO score and a credit report at MyFico.com for $19.95. Each score can be on a different scale, so focus on where you stand compared with other consumers and what you can do to improve your number. For more information on raising your score, see Fast Ways to Improve Your Credit Score.