For consumers with a low credit score, finding your footing after years of credit problems can be a difficult road to navigate. Your credit history involves a number of steps that include disputing credit report errors, making smarter money decisions, not overextending our budgets, etc… Luckily, the federal government has also begun creating new regulations on the credit industry to require more transparency on creditor’s terms and decisions to extend or deny credit lines to consumers. An easy way to fight back is use a one time credit score offer to establish a baseline for your credit file.
The main legislation that was passed is the Fair Credit Reporting Act. The FCRA requires that creditors give notice of credit decisions for extending credit to everyone. Here are some instances of when a creditor must notify the consumer of their actions:
“Adverse Action” Notice
The FCRA requires creditors taking adverse action to give you a notice with this information:
• the nature of its credit decision
• the identity of the consumer reporting agency providing the
information on which it relied in making its decision
• that you can get a free credit report from that consumer
reporting agency if you ask for it within 60 days, and
• that you can dispute incorrect or incomplete information in the
Beginning July of 2011, if a creditor that used your credit report takes an adverse action against you, and if it also used a 1 time credit score in making its decision, it must also tell you: your credit score, the range of possible credit scores, the key factors that adversely affected your low credit score.
Barring one of the above exceptions or limitations, if the creditor does offer you an APR less favorable than what it offers to about 40% of other consumers it has to either tell you this (called a risk-based notice), or reveal your credit score and how it compares to others (this is called a credit score notice).
If the creditor chooses to use the low credit score notice, it must provide you with the following information:
• your current credit score
• the date the credit score was created
• how your credit score compares to those of other consumers who were also scored using the same credit scoring method
• the identity of the consumer reporting agency providing the score, and
• that you have a right to a free secure copy of your credit report from each nationwide consumer reporting agency once every 12 months.
If the creditor chooses to use the risk-based notice, it must provide you with the following information:
• the terms the creditor offers you are based on information from your credit report
• the terms it offers you may be less favorable than the terms it offers to consumers with better credit histories
• the identity of the consumer reporting agency providing the report it used to compare you to others, and
• that you have a right to a free copy of your credit report from the reporting agency if you ask for it within 60 days.
Both types of notices must also tell you that you have the right to dispute inaccurate information in your credit report. If the credit you are requesting does not have an APR, the creditor must tell you whether the most important credit term in the contract differs for you than for others. For example, it might have to tell you that the utility service deposit it charges you is higher than what it charges others.
How To Handle Being Turned Down Due To Your Low Credit Score
If the creditor denies you credit, reduces or cancels your credit, or offers you terms worse than what you requested, you should always ask the creditor on what it based its decision, the reasons for its decision, and how the terms it offered you compare with the terms it gave to other consumers.
Sometimes the creditor will include this information in a notice it gives you with its credit decision. Review any notice carefully to see if information about the credit decision is missing.
Once you accept credit with terms worse than those you requested, the creditor may not be required to give you notice. So it’s best to request an explanation for the credit decision before you accept the offer or use the credit.