Denied credit? Under new law, you’re entitled to a free copy of your FICO score

Ryan Mac

July 22, 2011|By Ryan Mac

Consumers denied a credit card or auto loan are entitled to free copies of their credit scores starting yesterday.

The 2010 Dodd-Frank financial overhaul law expands disclosure rules and places the responsibility on financial companies to provide the numbers. It also forces lenders to give free scores to consumers who don’t get the best rates when borrowing.

The rule applies to companies that use scores to make loans. The most common scores are based on models established by FICO, formerly known as Fair Isaac Corp. The numbers, which range from 300 to 850, affect the ability to get mortgages, credit cards, and insurance products, as well as the rates borrowers pay. Under previous laws, all consumers were entitled to free annual credit reports, but not to their actual scores.

“The law will affect credit-related transactions that occur tens of thousands of times every day,’’ said John Ulzheimer, president of consumer education at SmartCredit.com.

The rule also requires that a credit score be accompanied by the four main reasons why the number was not higher.

Consumers may be unaware of the variety of credit scores and may purchase a score thinking it is their only “true’’ score, according to the bureau. This could negatively affect them “if the credit scores the consumer buys give a substantially different impression of his or her credit risk than credit scores that a lender would use.’’

Since 2004, mortgage lenders have had to provide credit scores to borrowers who are turned down, Ulzheimer said.

It’s unclear whether the rule also will apply to so-called custom credit scores used for nonlending, such as renting an apartment or purchasing insurance, said Chi Chi Wu, a lawyer at the National Consumer Law Center in Boston.

Lenders that use traditional FICO scores, such as student-loan companies and credit-card issuers, must supply scores, Ulzheimer said. The FICO score is used by 90 of the 100 largest US financial institutions, according to FICO’s website.

A FICO score of 760 is considered an “elite credit score,’’ said Ulzheimer, who said that any number at or above that figure would probably mean a borrower gets the best interest rate.

The average rate for borrowers with credit scores of 700 for a five-year new car loan is 5.48 percent; those with scores of 700 or better can qualify for rates as low as 2.5 percent, said Greg McBride, senior financial analyst for Bankrate.com.

Some consumers incorrectly expect to get credit scores when obtaining their free annual credit reports at annualcreditreport.com, said Liz Weston, author of “Your Credit Score.’’ Consumers can receive free copies from each of the nationwide credit bureaus - Equifax, Experian, and TransUnion - once every 12 months. Consumers who are not entitled to free credit scores would have to pay $19.95 at myFICO.com for a FICO score and report.

Ryan Mac writes for Bloomberg News.

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