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Borrowers can now avail free credit scores

By Faye Mergel
Published: Tuesday, December 7th, 2010

Starting January 1, 2011, consumers will have a reason to celebrate as the first New Year gift is being doled out.  Credit card reports had always been surrounded by some amount of mystery until recently.  These documents are indicative of a person’s creditworthiness and are very useful.  Consumers will now have access to their free credit card reports once a year upon request.

As per the recent Federal regulation issuers and other lenders will have to provide consumers with the reason behind the interest rates that are levied on the new cards or their loans.  This rule is applicable to even those that are charged a marginal hike in interest rates in comparison to the best rates available.

So, consumers are a happy lot as they will now legally be able to find out why they could not avail the loan on the best terms possible.  This piece of information would in turn be helpful in setting right the issues that could have had the impact on a person’s credit.

This regulation has however, come in a bit late and is a result of the Fair and Accurate Credit Transactions Act, 2003.  As per this Act the lenders will have to provide this information via the ‘risk-based pricing notice’ as well as a credit report along with the credit scores.

The common practice of adjusting interest rates as well as other credit-related terms is based on the previous credit history of the applicant and this is called risk-based pricing.  This risk-based pricing notice is a bureaucratic nightmare; hence all lending agencies are instead expected to provide the credit scores.  Hence consumers will be able to access their FICO scores for free in most cases.

FICO scores are the indicators of a person’s creditworthiness in the US.  This is a key component in the lender’s decision making during loan approvals and while charging interest.  There was a great deal of secrecy surrounding this score a decade ago.  But today, as per the Fed regulations consumers will be able to avail these credit scores by obtaining their credit reports which contains almost all the credit-related information that one would require.

Since FICO scores play such a vital role in the interest rates it is important for the consumers to know their scores and maintain a good score.  Apart from providing the information it also offers an insight into the qualifying factors in lending practices.

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