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Free credit scores! Sort of

By Leslie McFadden · Bankrate.com
Monday, January 10, 2011
Posted: 1 pm ET

Apply for a credit card this year and you might receive a disclosure that contains a free credit score -- the one actually used by the lender to judge your credit risk. Or a notice informing you that may not have received the lowest interest rate because of your credit. If you're denied, you'll get a notice that gives you the right to check your credit report for free.

New risk-based pricing rules took effect Jan. 1, that require lenders to inform applicants when they haven't received the best credit terms. As an exception to providing risk-based pricing notices to consumers that received a higher interest rate because of their credit risk, the rules allow lenders to provide every borrower with a credit score disclosure notice.

The new disclosure requirements changes aren't exactly minor.

"Lenders are expecting 1 billion credit applications this year," says Craig Watts, spokesman for FICO, the company that developed the ubiquitous FICO credit score. "We think 500 million of those are going to require lenders to send out some kind of risk-based pricing notice or credit score disclosure exception notice."

Watts adds that "more and more" lenders seem to be leaning toward using the credit score exception. It may be a matter of getting ahead of new rules coming in July, when a portion of the Dodd-Frank Wall Street Reform and Consumer Protection Act that deals with credit scores takes effect. Lenders will then have to start including credit scores in adverse action notices and risk-based pricing notices.

What's in the credit score notice?

For now, the credit disclosure exception notice must include the score the lender used, and provide contextual information, including the score range and how your score ranks among other U.S. consumers. Yet the law doesn't require it to have one very important piece of information.

"The notices that consumers get that do have the scores,  starting this month, don't necessarily tell the consumer which score, where the score came from, what brand of score it is," says Watts.

In other words, if the score is a FICO score, the notice doesn't have to say so. You might not be told exactly which scoring model was used.

According to Watts, FICO has tried to address this potential problem by putting together a template for the credit bureaus "with the suggestion that they pass that along to their lender clients to use as part of this disclosure to consumers." The template includes the name of the score.

"The bureaus seem willing to go along with that, and we think a lot of lenders will adopt this, so we think we're going to be able to help get around that particular problem so consumers will have some idea of where the score came from," he says.

FICO has also rolled out a new educational website, Scoreinfo.org, to explain the rules and go through the different disclosures that consumers might receive when they apply for a loan or credit card. It also reviews basic information about FICO credit scores.

One notable feature of the site is its FICO score factors guide, which lists common reason codes, or key factors that prevented someone's score from being higher. It explains each reason code in plain English and suggests what to do about each one. Watts notes that the risk-based pricing and adverse action disclosures sent out after July must provide reason codes.

Do you think the risk-based pricing rules went far enough?

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