With multiple credit bureaus each using their own frustratingly complex mathematical formulas to calculate credit scores, it’s a challenge to stay informed about the state of your credit when applying for a loan. Starting July 21, though, it could get a whole lot easier, as lenders must begin providing free copies of credit scores. There’s just one catch—you have to get rejected first.
Changing the Rules
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, banks will be required to justify their decision when they deny a borrower’s loan or credit card application or refuse to give a borrower the best interest rate. The new rules, implemented by the Federal Trade Commission and Federal Reserve Board, are intended to help consumers get a better idea of the creditor's decision-making process and compel people to improve their credit scores.
It’s All About Transparency
Although FICO scores are still the most commonly used way to judge a borrower’s credit risk, many banks and credit bureaus are now relying on different methods to determine credit scores. The new regulations will allow rejected loan applicants to understand exactly what formulas were used to evaluate their credit. Borrowers who are approved for loans under the best terms, however, won’t be receiving a copy of their credit scores.