Credit card applicants can see their credit scores for free if a bank used that score to decline service, according to the Federal Reserve. The Federal Trade Commission and the Federal Reserve Board jointly announced their rules for implementing free credit score notifications under the the Dodd-Frank Wall Street Reform and Consumer Protection Act.
The Fair Credit Reporting Act already enabled consumers to request free copies of their credit reports when declined for new credit. However, the free credit reports required under the FCRA didn't include a credit score or a description of the scoring method used to determine an applicant's creditworthiness.
Downgraded credit also requires disclosure of credit score
The new rule also extends credit reporting requirements to include situations where a consumer applies for a credit card or a consumer loan under a promotional offer, but gets approval for less attractive account terms instead. In those cases, lenders explain why an applicant's credit risk affected the offer and extend the same free credit report and credit score as if the applicants had been denied any account at all. Under the terms of the Credit CARD Act, consumers can decline a less attractive account without impacting their credit report or credit score.
These changes to the Fed's Fair Credit Reporting Regulation, also known as "Regulation V," take effect 30 days after their printing in the Federal Register. In a statement to reporters, Fed officials stated that they expected the printing to take place "soon."
Credit scoring method must also be revealed
The new rules address a common concern among credit card applicants. Though many banks still use the popular FICO score to assess a borrower's risk, credit reporting agencies and banks' own risk management departments have implemented their own algorithms to convert consumer data into streamlined credit scores. Even FICO now uses multiple formulas for different types of consumer loans. The revised reporting requirements will help consumers understand exactly which scoring model a lender used, while offering specific feedback about the factors that impacted their decisions.
About the Author
Joe Taylor Jr. is an internal business consultant for a Fortune 500 company, who writes about finance, culture, and design. He holds a Bachelor of Science in Communications from Ithaca College.