Lenders Must Soon Give Reasons for Loan Rejections

July 11, 2011, Written By Lynn Oldshue

Beginning July 21, consumers will get an explanation when they don’t receive the best interest rate or are turned down on a student loan, automobile loan or credit card application.

This new regulation from the Federal Reserve and Federal Trade Commission requires lenders to send you a free copy of the credit score it used to arrive at its decision. The new Consumer Financial Protection Bureau will enforce these new rules.

For the first time, consumers will get a clear understanding of how they are judged by lenders. The lender’s disclosure notice must provide the score and the factors that pulled down your score and where your score ranks nationally. It must give the major factors that decreased your score such as late payments or maxing out credit cards. It will also tell how to get a copy your credit report.

There are exceptions. The ruling only applies to lenders. If a utility, telephone company, or insurance agency has a special scoring system, it does not have to provide a free credit score. If you received the best terms and lowest rates, you may not receive a free score.

This is very beneficial for consumers. Credit scores affect so much of our financial and daily lives, from interest payments to employment and insurance rates, yet many people overlook it. This new rule makes consumers come face-to-face with their credit score and perhaps recognize its importance. This should be an opportunity for people to understand the changes they need to make in order to improve their credit score.”

The majority of Americans don’t know their credit score. A new study, Americans’ Financial Capability by the National Bureau of Economic Research, showed that only 36 percent of consumers checked their credit score. The study also showed that the majority of people who check their credit score (52 percent) had a score higher than 720.

Here are five tips for raising your credit score:

* Pay all your bills on time. This is the single most important factor in your credit score. Even if you only pay the minimum, pay your bills on time because late and missed payments are the easiest ways to lower your credit score.

* Get a copy of your credit report from all three credit agencies and check it for errors. U.S. residents are entitled to one free copy of their credit report from each credit reporting agency once every 12 months. That means you can request a free credit report once every four months as long as you stagger your request so they go to a different agency each time. This information is found by calling            1-877-322-8228       or at AnnualCreditReport.com. If any of the information on a report is incorrect, contact the agency to correct it since it may give your credit score a quick boost. Incorrect information should be corrected or removed within ten to thirty days. Your credit score is usually not shown on the free annual credit report; you typically have to pay to see your credit score.

* Pay off your debt. High balances and high debt ratios drag down credit scores. Your debt balance should be less than one-third of your available credit. If you have a good payment history, contact your creditors and ask for lower interest rates. Then use what you saved in interest to pay down your balances.

* Build a long-term relationship with the accounts you have. A long history of good payments on a car loan, mortgage, or credit card increases your credit score. Keep older accounts or credit cards open even if you are not using them, because you are rewarded for a long, positive credit history. If you review your credit report and discover you have many accounts you no longer use, close the newest ones first.

* Limit your credit applications. Too many new accounts can lower your credit score. Each time you apply for a loan, the application shows up on your credit report. A significant increase in inquiries signals that you may be desperate for money and are a credit risk. The exception is shopping for a mortgage or a car loan, as multiple inquiries for the same purpose in a reasonable period are considered a single inquiry.


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The information contained within this article was accurate as of July 11, 2011. For up-to-date
information on any of the terms, cards or offers mentioned above, visit the issuer's website.


About Lynn Oldshue

Lynn Oldshue has written personal finance stories for LowCards.com for twelve years. She majored in public relations at Mississippi State University.
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