by: John P. Carey, Chief Administrative Officer,
Starting in July, changes to federal law require that lenders disclose to consumers certain information, including the credit score used to (1) turn down a loan application (known as an "adverse action") or (2) approve a loan, but not at the best available interest rate (known as a "risk-based pricing" decision). This change to federal law adds to the existing requirement that lenders disclose or provide upon request a general reason for an adverse action credit decision.
The new rules apply to credit applications for many loan types: mortgage loans, credit cards, auto loans, student loans and personal loans, among others. And, the new rules don't affect just banks. Credit applications for service providers such as cable companies, or even security deposits on apartments, are also subject to these new requirements.
Generally, "credit score" refers to a numeric value that attempts to predict a consumer's ability and likelihood to repay a loan. It is usually obtained from a specific consumer credit reporting agency (also known as a credit bureau) like Equifax®, Experian® or TransUnion®. However, some lenders may create their own scores. In each case, whether the score was obtained from a credit bureau or created by the lender, lenders must disclose the score if it was derived solely from information received from a credit bureau and if it was used to make the credit decision.
At Citi, we have a number of consumer businesses that offer a variety of credit products. And, the notices you receive from us may look a little different depending on the Citi business involved. Notices may also look a little different depending on whether your application was declined, you did not qualify for the best interest rate available, or your current credit terms are being changed.
Despite these slight differences, there are still a few things you should expect to see on every notice if a credit score was used in the decision-making process, including:
· The credit score used in making the credit decision;
· A range of possible credit scores based on the scoring model used;
· Key factors that impacted your credit score;
· The date your credit score was created;
· The name of the entity providing the credit score; and
· A statement indicating that a credit score is a number that takes into account information in a consumer report, that the consumer's credit score was used to set the terms of credit offered, and that a credit score can change over time to reflect changes in the consumer's credit history.
It is generally a good idea for consumers to be aware of their credit score. Under a different federal law, consumers may obtain one free copy of their credit report from each of the credit bureaus per year; in some states, consumers have the right to receive more than one. You can obtain information about the guidelines in your state and information on how to obtain your credit reports by visiting www.annualcreditreport.com.
Finally, in our communications with you about any application you make for credit, we include a number to call for more information. If there is something you don't understand, please call that number. We also have some helpful frequently asked questions below. We will post more information on that site if there are significant changes to the requirements or our disclosures, or if our clients request additional information.
As always, we welcome your general questions and comments here. Let us know what you think of the new disclosures. What other information would you like to see to help you better understand how this change impacts you?
Frequently asked questions: Credit scores
What is changing?
Changes to federal law require creditors, in some circumstances, to disclose customers' credit scores and related information if a creditor uses a consumer credit score:
1. to grant or extend credit to a consumer on terms that are less favorable than the best terms available to a substantial proportion of that creditor's consumers (known as a "risk-based pricing" decision); or
2. to take what is called an "adverse credit action" such as a denial or revocation of credit, a refusal to extend credit or a change in the terms of an existing credit arrangement.
When required, the new information will appear in the risk-based pricing and adverse action notices that creditors send their customers.
How will this affect me?
Beginning on July 21, if you are turned down for a loan (known as an "adverse action") or approved for a loan but not at the best available interest rate (known as a "risk-based pricing" decision), and the lender used your credit score to help make the decision, you may receive a letter from the lender providing the following information:
1. The credit score used by the lender in making the credit decision;
2. A range of possible credit scores based on the scoring model used;
3. Key factors that impacted your credit score;
4. The date your credit score was created;
5. The name of the entity providing the credit score; and
6. A statement indicating that a credit score is a number that takes into account information in a consumer report, that the consumer's credit score was used to set the terms of credit offered, and that a credit score can change over time to reflect changes in the consumer's credit history.
What does it mean if there is no credit score information on my adverse action notice?
If there is no credit score information, then this generally means that the creditor did not consider your credit score to determine whether or not, or at what price, to grant credit to you. It could also mean that your credit score was considered but was not a reason for the decision, or that the creditor may have used a credit score that did not fit the definition of the type of credit score that must be disclosed.
When will I see this change?
If you receive an adverse action or risk-based pricing notice after July 21, 2011, you may receive the new notices which include a credit score and related information.
What is an adverse action notice?
Federal regulations generally require a creditor to notify a credit applicant against whom it has taken an "adverse action". Adverse action is defined as the denial or revocation of credit - such as closing an existing account, a change in the terms of an existing credit arrangement, or a refusal to grant credit in substantially the amount or on substantially the terms requested. The main reason for the notice, which now includes the credit score, is to alert consumers to the existence of negative information in their credit reports, so that they have the opportunity to check their credit reports and correct any inaccurate information. Consumers may also want to use this information to improve their credit scores.
What is a risk-based pricing notice?
Federal regulations generally require a creditor to give consumers a risk-based pricing notice when the creditor uses a credit score to extend credit to the consumer on terms that are materially less favorable than the best terms available to a substantial proportion of consumers. The typical example includes a customer who applies for tiered pricing and does not get the best (or lowest) APR offered. Alternatively a creditor may elect to send a credit score disclosure notice to all applicants shortly after application. The main reason for the notice is to alert consumers to the existence of negative information in their credit reports, so that they have the opportunity to check their credit reports and correct any inaccurate information. Consumers may also want to use this information to improve their credit scores.
What is a "credit score"?
Generally, "credit score" refers to a numeric value that attempts to predict a consumer's ability and likelihood to repay a loan. It is usually obtained from a specific consumer credit reporting agency (also known as a credit bureau) like Equifax, Experian or TransUnion. However, some lenders may create their own scores. A credit score is usually calculated from information in a consumer credit report and takes into account such things as payment history, amount(s) owed, length of credit history, types of credit used and open applications for credit. It is often used by lenders to make credit decisions and to set the terms of credit offered.
What is considered a "good" credit score?
It is difficult to describe a "good score" because scores depend on a variety of circumstances that may be unique to each creditor. However, the new disclosures will provide not only the consumer's credit score, but also the range of possible scores; this may help consumers to understand where they fall in the range. Generally, however, the higher the credit score, the higher the credit quality. Creditors look at a number of factors when they determine whether or not to extend credit to a consumer, and/or what price to charge for that credit. Credit score is only one factor. It is also important to note that credit scores can change over time to reflect changes in a consumer's credit history. There are many websites that describe the relative quality of credit scores. Here is one: http://www.creditscoring.com/pages/bar.htm.
How can I improve my credit score?
Many factors impact your credit score, and the score may change over time to reflect changes in your credit history. Suggestions on how to improve your credit score can be found on the Federal Reserve Board's website at: http://www.federalreserve.gov/consumerinfo/fivetips_creditscore.htm.
If I see a problem with my credit score, how do I get it fixed?
If the information on your adverse action or risk-based pricing notice looks incorrect, you should contact the consumer credit reporting agency that supplied the score, or contact the creditor if the creditor used its own score. This information can be found on your notice, or on the consumer credit reporting agency's website.
If I improve my credit score, can I reapply to Citi for credit at a later date?
How can I get specific information about my application for credit?
You should call the number on the adverse action or risk-based pricing letter you received from Citi.