Over the last several years many changes have been initiated which have meant that consumers have more information about how their credit scores are compiled. The once secret algorithm is now common information published by FICO, the main provider of the most widely used credit score. Access has been granted to allow consumers a copy of each of the three main credit reports free annually, but FICO scores still came at a price. As of January 1st 2011 millions of Americans will now be entitled to a free copy of their credit score.
In March 2010 the Bureau of Consumer Protection at the Federal Trading Commission made an amendment to the Fair and Accurate Credit Transaction Act of 2003, which was implemented on 1.1.2011. All consumers who apply for credit and do not receive the lenders best advertised interest rate will be entitled to receive a risk based pricing notice.
Many credit based products advertise one rate but have several tiers of interest rates which are based on credit scores. A risk based pricing analysis is used to set the interest rate which a consumer is offered and is heavily based on credit history. It is however a complex notice in comparison to a credit score.
The new amendment states that “as an alternative to providing risk-based pricing notices, the rules permit creditors to provide all consumers who apply for credit….who receive less favorable terms due to information in their credit report…. with a free credit score and information about their credit score.” The law already allows consumers who face rejected applications a free copy of the credit report which was used by the lender when making their decision. Those who receive the best interest rate can presume they have excellent credit already.
Although creditors can choose to issue a fair pricing notice as opposed to credit scores, it is believed that most will opt for the simpler choice of releasing credit scores. Whichever notice the lender decides on it must be provided in writing or electronically if the consumer agrees.
The intention behind the change is that consumers, who are already becoming more educated about their credit scores and how to understand their credit reports, will be able to better work to improve their credit scores if they have free access to them. Consumers will also discover if the creditor is using the traditional FICO credit score or the newer Vantage2 score.
Millions of American consumers who do not receive the best interest rate will benefit from the amendment to the FACT Act, and will no longer need to go to the expense of purchasing their credit scores.