Beginning July 21, 2011, the Federal Reserve Board’s credit score disclosure rules go into effect allowing consumers who are denied credit or offered credit at higher interest rates, to get their credit scores for free.
Previously, consumers who were denied credit were allowed to get their credit reports for free within 60 days of being denied credit, but that did not come with credit scores.
Under the new rules, lenders, banks and credit card companies are required to provide credit scores to potential borrowers who are denied credit or offered less favorable terms, such as higher interest rates, based upon those credit scores.
While this is a great advance towards providing more transparency in credit decisions, it does not do a lot to help potential borrowers who may get denied for credit as they would be better off knowing their credit scores prior to applying.
For consumers with less than perfect credit, getting credit scores prior to applying for a mortgage, auto, student or even personal loan can eliminate any elements of surprise, shock or embarrassment.
Learning your credit score after you apply for credit does little to help you get approved at the time of applying for credit. However, if you know your credit score could use a little boost you have a little time to push it up before turning in those loan applications.
What you should do if your credit is less than perfect
Get your credit report to check for accuracy of the information. Credit scores are comprised of the data in your credit report and you want an error-free credit report. If you are looking to borrow a large sum; for instance, a mortgage, car or refinance, you should get your credit reports from all three major credit bureaus — Experian, Equifax and TransUnion.
Serious negatives such as charge-offs or collection accounts should be dealt with prior to applying for credit; unless, those items are older. In that case they may not be affecting your credit score as much and sometimes those items are better left alone unless you get them totally deleted from your credit reports.
Get the credit scores most lenders use
There are many companies offering credit scores in addition to their being several types of credit scores. The Federal Reserve disclosure rules require lenders share the identical credit scores used in determining their approval or denial of credit. Therefore, lenders using proprietary scores or a specialized auto or education loan score, they will have to send you that exact credit score.
FICO scores remain the most widely used credit scoring model. Potential borrowers would be better off getting their credit scores from Equifax and Transunion. Experian does not offer consumers the credit score lenders actually use, they offer a simulated credit score.
There are other websites that sell scores but most of those scores are not official nor are they used by lenders. These types of scores are good for providing an approximate credit score. But when applying for credit, you will only benefit from knowing the actual credit score a lender will be using.
