If you're turned down for a loan, lenders have to tell you what they saw in your credit history that led to the decision. Here's what you need to know about your scores.
Back in 2011, a section of the Dodd-Frank Act went into effect regarding rules for disclosing credit scores. It's been almost two years since then, and consumers are still learning the ins and outs of the nebulous world of credit reporting and scoring.
The final rules stipulated that creditors must disclose the credit score used to make a lending decision, along with information related to the score, if a consumer is denied or offered less-than-the-best terms.
This includes the range of possible credit scores under the model, four or five key factors that hurt the score, the date the score was created and the credit reporting agency that provided it.
As credit score disclosure notices are now the norm, here's what to know when looking one over.
Surprise! There's not just one credit score. Although the most widely used score is the FICO score, another credit score could show up on your disclosure and the lender doesn't need to identify the brand.
"I think you'll have a slice of lenders who will proactively tell the consumer what brand the score is," says John Ulzheimer, president of consumer education at SmartCredit.com.
For everyone else, there are ways to decipher the score's origin. If the range is between 300 and 850, it's a FICO score. Still, it could be a specific FICO score, such as one designed for credit card issuers, and not the one available on myFICO.com. If the range is 501 to 990, it's a VantageScore, which was developed by the three credit reporting agencies, Equifax, Experian and TransUnion. If the range is anything else, it's an obscure model not used by many lenders, says Ulzheimer.
"(Try to) call the lender and find out what score it is," Ulzheimer says. "I think that's a reasonable request."
Lenders are required to give additional information about the score, including the four factors, or reason codes, that hurt it the most. A fifth factor can be added if one of those factors is inquiries, or the number of times potential creditors pulled your credit score or report. Not all inquiries count the same, however.
For example, if you shop around for a mortgage, auto or student loan, the FICO score will ignore inquiries made in the 30 days prior to scoring, according to myFICO.com. Inquiries older than 30 days that were made within any 14-day span or 45-day span, depending on the version of the scoring model used, count as one inquiry.
There are also "soft inquiries" that don't affect your score, says Bradley Graham, senior director of product management at FICO.com. That includes when you or your employer pulls your credit report. Ditto with marketing offers you get in the mail.
"It only counts when you initiate requests for credit," Graham says.
One way creditors can comply with the rules is by sending out a credit score disclosure to everyone who applies for credit, instead of just those consumers who get denied or receive unfavorable terms. That means if your FICO credit score is 800 and you received the best terms available, you could still get a free credit score.
What may surprise you is, despite your high score, the disclosure will list the four reasons your score isn't higher. Translation: You could do better.
"It's like saying you're super-awesome but not perfect," says Ulzheimer. "But that's OK because lenders don't require you to be perfect to get the best terms."
The free credit score likely will come from one of the three credit reporting agencies: Experian, Equifax or TransUnion, but the company won't be able to discuss your credit score.
"We are the source of the credit report used to calculate the score. But we're not the source of the credit score itself," says Rod Griffin, director of public education at Experian.
The agencies won't be able to tell you how much a missed payment deducts from your score or even which trade line is valued the most in the score. But what they can do is go over your credit report and make sure there are no mistakes. They can also help you understand the factors that affect your score, which are included in the disclosure notice.
"It seems like a contrary message," says Griffin, "but consumers shouldn't worry so much about the number, but instead focus on the risk factors. That's what is going to improve their scores."
The most heartening part of a free credit score disclosure: Your number is not fixed.
"While the score is the one used to make that decision, it's still a snapshot in time," says Graham. Hence the date on the disclosure notice, which indicates when the score was calculated.
So, if you pay down debt or bump against a credit limit, your credit score could be higher or lower the next time it is pulled. Your score can change as often as the information in your credit report does.
"We want consumers to use the information as a tool rather than a source of frustration," says Griffin.
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