For the benefit of those borrowers of installment loans, there is a new set of rules regarding credit scores that took effect in 2011. The Dodd Frank Financial Reform Act changed federal laws regarding credit scores. Starting last July 21, 2011, lenders who deny a borrower an installment loan or any payday loan, is required to show the borrower his credit score for free.
The new rule is part of the amendment made to the Dodd Frank Wall Street Reform and Consumer Protection Act that passed two years ago. The act was introduced by Sen. Mark Udall who said, “Your credit score can skew the terms of your car loan or even prevent you from being approved for a home mortgage. With such important financial decisions hanging in the balance, you ought to be able to see the score that is being used against you.”
This act requires lenders and creditors to provide additional information that influenced their credit decision and helps borrowers to know how their creditworthiness is gauged. A lender must disclose to the borrower how their credit scores were arrived at, what the range is in getting the possible credit scores, what model is used, date the credit score was created, and name of the entity or person who provided the credit score.
It is a fact that borrowers with bad credit scores are usually given higher interest rates and less-favorable loan terms compared to those with a good credit standing. The amendments on the existing federal laws pertaining to loans and credit scores will add to the level of protection for American borrowers and will help borrowers make wise choices about their finances.
Several negative issues came out pertaining to this Act. The FICO (Fair Isaac and Company), developer of the software used by U.S. lenders in generating credit scores, views the new provision as resulting in disclosures of more than 500 million credit scores each year. This will be a lot of work for lenders. Some consumer advocates also fear that the new amendment on the existing federal laws may not be strong enough to protect the rights and welfare of borrowers. The rules may not be clear enough for borrowers to get all the information they need.
Although the new set of rules on credit scores are provided to uphold the rights of borrowers, they still need to know how to exercise these rights responsibly. Aside from knowing that getting the information on your credit score is free, it is your right to have it. It may have once been a mysterious and proprietary secret used exclusively by the credit bureaus and lenders, now credit scores can be used by borrowers in managing their finances.