Almost everyone gets at least a little anxious when applying for an auto loan or a mortgage, but it’s even more stressful for people who get stuck paying higher interest rates or are turned down because of their credit. These would-be borrowers are in the dark about what led to the lender’s decision and often don’t know how to fix the problem.
Starting this week, that’s going to change. Consumers who are denied a loan or who have to pay higher interest rates because their credit scores aren’t high enough will get to peek behind the curtain. New regulations that kick in July 21 will require lenders to share your credit score with you if that score was the basis for the decision to deny you a loan or charge you more for it.
Currently, you can get a copy of your credit report once a year from each of the three major bureaus at annualcreditreport.com, but that information doesn’t include your score. You can buy a copy of your score, but it might not have been the one the lender was using. They might have been using a score issued by a different bureau, or the score itself might have been different.
Here’s where it gets a little confusing: Lenders can ask a credit bureau to generate a score using a specific type of risk modeling, and the formulas for, say, a car loan are different from those for a mortgage, personal loan and so on. Since the calculations are slightly different, so are the final scores. Now, you’ll be able to see exactly what bank or finance department saw when they requested an inquiry into your credit score. You’ll also get information about credit scores as well as information about how to get a free copy of your credit report.
“They are going to see the score that the lender in fact used, which is nice because so many of the scores people buy aren’t what lenders use, which is confusing,” says Craig Watts, public affairs director for FICO. “This is going to be a boon for consumers, who can learn why they were declined and what they can do to change their credit rating.” FICO runs the website Scoreinfo.org, which explains lenders’ new obligations in more detail.
There are a handful of exceptions to the new rule; if lenders use an in-house system for determining creditworthiness and bypass the bureaus, or if they don’t use a credit score to make their decisions, they don’t have to provide you with a score. Since the majority of mainstream financial institutions that rely on credit scores when originating loans, this new requirement will give borrowers with less-than-perfect credit access to a previously unavailable trove of information.