New Credit Score Rules Still Leave Consumers In The Dark

The stark reality is  many people are facing the fact that the health of their credit score is going to cost them dearly if it is not a good one. According to  creditkarma.com to qualify for a car loan, home mortgage or unsecured credit visa card the majority of lenders will only accept people who have a minimum credit rating of 660. This is the final frontier because if your score is below that you could possibly kiss goodbye your chances of getting your next loan.

Another startling revelation is that nearly half of all Americans who use credit have scores below the minimum requirements to qualify for new lines of credit. This means a lot of people are at risk of having their applications for credit denied.

In the current economy the credit score is becoming more influential and essential than ever. It is used to control consumers access to the credit they need and the price they are are going to pay for it. For these reasons, people need to seriously look as how they manage their finances.

Expansion Of New Rules On Credit Score Disclosure

As credit scoring can dictate the financial futures of consumers they need to be able to gain a better understanding of the heath of their credit score and the resources of how they can improve it.  Under the credit score rules within the Consumer Protection Act, the Federal Trade Commission (FTC) states that creditors need to reveal the credit score used and any additional financial information about the score if a persons loan application was denied or if they received a less satisfactory rate of interest than expected.

These new credit score rules are part of the new reform bill being passed by congress to make the financial industry and in particular the credit scoring system more transparent and easier to understand for consumers. In this way borrowers can have a better understanding of how to obtain better terms on the money they borrow.

Complexities of Credit Scoring Systems Can Confuse 

Although it is commendable that the government are pushing for the financial service industry to be more open with their lending practices many critics feel, there is still to much confusion when it comes to credit scoring.

The reason for this confusion is result of banks and lenders using more than one credit scoring scale system. Banks can use their own scoring system to evaluate a borrowers loan application and under the current rules they do not have to disclose this information. However, if they used an external scoring system in conjunction with their own the lender would only need to disclose the results based on the external system.

Using a combination of different scoring systems is not uncommon because not all banks are looking for the same type of borrower  therefore, the credit score requirements are unique to each lender. However, this poses a problem for the government in their pursuit of making the credit report rules easier to understand for the consumer.

If a lender is using two scoring systems to evaluate a borrower and only discloses the results based on the external system then, the consumer is not getting the full picture of how the lender arrived at their final decision on the rates they charge. In this way the borrower does not get all the information they need on why they were not offered a better deal.

Loopholes - Not All Bases Are Covered

It is not only banks and credit card companies that assess your reliability to repay.using your score. The insurance market and the auto trade also use their own unique systems and some of the criteria they use will not be covered under the new rules.

For example, insurance providers use their own insurance scores that analyses different criteria that a bank would not look at, such as a persons insurance history. Other possible exclusions can be gas and utility companies who also use their own unique evaluations when assessing customers.

The banks argument in not sharing the results of their in house scoring systems would only confuse consumers because as the criteria is different comparing the two systems would be difficult making things less clear.

Although not perfect the new credit score rules do provide consumers with an opportunity to gain a better understanding of how the scoring system works and how it can influence their lending in the future.