New law may help consumers understand credit scores

Recently passed regulations will now give those who compare mortgage rates and even those who compare credit card offers greater understanding of how their rates and payment estimates are derived.

Under the new laws, which were implemented on January 1, creditors must alert consumers when their credit reports have been used to give them less-favorable rates than other customers.

This process, known as risk-based pricing, happens when different interest rates are given to consumers based on their credit history, The Dallas Morning News reports. In addition, those who are deemed a greater risk, and receive higher rates as a result, will also be provided with a free credit report and information relating how the company determined their rates.

Passed under the Fair and Accurate Credit Transactions Act, the newly implemented laws expand on existing requirements, which mandate issuers give consumers the credit scores they use when making decisions on loans, the news source says. However, the expanded information consumers will receive may make it easier for applicants to determine areas of their financial record that need to be improved.

Consumers will also have an additional advantage as the new process allows them to check and see how different companies choose to handle their data.

Tags: Credit cards, Credit Score, FICO Credit Score

Posted by FinanceAZ on Apr 1 2011. Filed under Credit cards. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry