Consumers looking for a loan should become a little better
informed after a credit transparency rule went into effect this
week.
Known as the Risk-Based Pricing Rules, the measure is the last
part of the Fair and Accurate Credit Transactions Act of 2003 to be
enacted and is meant to help borrowers better understand their
financial situation, according to the Federal Trade Commission.
Under the law, creditors have to notify a consumer when
information gleaned from their credit report has resulted in a loan
given under terms less favorable than were granted to other
borrowers, according to the FTC.
Anyone using what’s known as “risk-based pricing” can provide
all borrowers a copy of their credit score as well as information
about how their score compares with others in the U.S.
If not wanting to go that route, companies can give a notice to
the customers receiving a higher rate that such action was taken
because of their credit score, according to the FTC.
Before this week, mortgage lenders had to provide credit
information that was used for deciding the terms of a loan but
automotive dealers, credit card companies and others didn’t
necessarily have to turn over such details. And without that
information, experts said, consumers sometimes assumed they were
getting the best interest rate when in actuality their rate was
much greater than the one given to those with higher credit
scores.
Along with mortgage lenders, locals said some car dealerships
and others already were following these guidelines if for no other
reason than to keep the borrower in the loop.
But, they said, if the law results in more information getting
to potential borrowers, it should be helpful.
“Make your credit work for you, not you working for your
credit,” said Anita Green, financial literacy specialist at Casa de
Amigos.
Green said while people can request a free credit report each
year, it’s information not everyone looks in to.
She said often individuals and couples will save up for a car or
home without ever repairing their credit or asking if the rate
they’re receiving is the lowest one available. If they had the
information in front of them explaining why they aren’t eligible
for the best rate, she said it might push them to do a little work
repairing their score.
“It’s preparing yourself completely,” Green said. “Not just
saving up the money, but also getting your credit score to the
point that you’ll be able to get a decent loan and stay within
(your) budgeting plan.”
Staff at Rogers Ford Lincoln said when customers are presented a
list of how their credit score compares with others they’re usually
surprised. They said most assume 700 is a good score, which it is,
but are shocked to learn having a 700 score only puts them ahead of
48 percent of the nation.
At Pioneer Mortgage, Lisa Hagee said they already were providing
information to borrowers. She said they often hear from potential
home buyers wanting to know what they need to do to qualify for a
loan and that they typically advise individuals to work on that
credit score.
Increasing a score usually takes anywhere from three to six
months, she said, so the more a consumer knows, the better equipped
they’ll be to start improving their score when needed.
If a lender gives someone notice their rate was higher because
of information from a credit report but doesn’t also supply the
credit report, advisors said customers should request their credit
report from an agency.
Credit reports can be obtained once yearly through Equifax,
Experian and Trans Union. AnnualCreditReport.com also offers a free
report once each year.
Green said sometimes issues exist on a credit report that
shouldn’t be there whether because of fraud or some other issue. If
borrowers aren’t looking at the report, though, they won’t know to
dispute it.
Other issues are on credit reports because an individual has a
history of making late payments, has multiple credit cards open or
fails to pay more than the minimum rate on their credit card
balance, among other things. Some also may simply have a lack of
credit because they’ve never needed to take out a loan and not
purchased anything that required monthly payments.
Whatever the situation, financial advisors said the best place
for a person to start is by understanding what’s on their credit
report and working on it before they try to make big purchases.
Kathleen Thurber can be reached at kthurber@mrt.com.
Article source: http://www.mywesttexas.com/top_stories/article_e599e741-1ae7-5189-97cb-f264526cca01.html
Category: Identity Theft Watch