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When is good news also bad news?
Starting July 21, it will be easier for consumers to get a free credit score. Because of a new law, you may just get, in the mail, with no strings attached, your very own credit score. That's the good news.
But the bad news is that if you get that free credit score in the mail, it's because you've recently applied for credit and you've either been denied outright, or you didn't qualify for the terms you applied for.
Sorry about that.
But, hey, if it happens, at least you're better off than someone who tried to get a loan yesterday. Before that date, if you applied for, say, a low-interest credit card and were denied, or you attempted to get a loan at a bank, you may have been told that your credit wasn't good enough, but you were never given any solid, actionable information that might help you get what you wanted in the future.
However, because of the ever-helpful 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, that will change. You'll be able to see what your credit score was the moment you were considered for the loan or line of credit.
Then, if you choose, you can take steps to improve your credit and down the road, try again. Or you can drown your sorrows in a root beer, or possibly something stronger.
(Hey, I don't judge.)
Utility and insurance must provide reason for denial
And actually, it's not just credit cards and banks that have to send consumers their free credit score. In some cases, enterprises like electric companies and insurance companies, if they turn down someone who wants to become a customer, they will also have to furnish it. And in some cases, they won't have to.
"The final rules are pretty complicated," says consumer credit guru John Ulzheimer.. "The easiest way to think about it is that any entity, whether a bank or insurance company, it doesn't matter, if they use a credit score to underwrite loans, the rules apply."
So while you have the right to know why you were turned down for a perk-filled rewards credit card, the same rules may not apply if you're turned down by another entity that requires regular payments.
For instance, if the electric company rejects you for some reason that has nothing to do with your credit score, you won't be getting one in the mail…you'll remain in the dark. (Thank you. I'll be here all week.)
It's more common than you might know, according to Ulzheimer, who says that a lot of utilities and insurance companies in particular have their own scoring models, and so if you do apply to rent an apartment or to get a major cable TV package and you're turned down, don't automatically assume you'll get a free credit score in the mail or that you'll fully understand why you were rejected.
Risk-based pricing notice
But if you do, you won't just receive your credit score in what's called a risk-based pricing notice, you'll also receive information on what damaged your score, up to four or five reasons, in fact, as well as the date the score was created and which credit bureau issued the score. All of this may not keep you from opening the fridge and gulping down two or three root beer floats, but it's certainly helpful information.
Provided, adds Ulzheimer, that "you open the letters you get in the mail, which unfortunately is not something everyone does."
Darn. There's always a catch. Still, it's a helpful law, particularly with credit cards and for those consumers who want to always make sure they have the best credit card deals. If your credit card issuer, for instance, raises your interest rate due to your credit score dropping, they have to send you your credit score and let you know the reasons it plunged.
One has to think that will help a lot of consumers get back on track with their finances, and as more consumers apply for credit cards and take out loans, well, that should make the banking industry happy, too.