3 New Types of Consumer Credit Notifications
Familiarize yourself with new notices and help clients better understand their credit
Elizabeth Karwowski, founder, Get Credit Healthy Inc.
As published in Scotsman Guide’s Residential Edition, February 2012.
In order to demystify the business of credit for consumers, this past summer the Board of Governors of the Federal Reserve System introduced new notification rules. Now consumers will have broader access to information in their credit file, allowing them to check and correct any recorded inaccuracies while also understanding why those inaccuracies occurred.
Although these changes were made with the consumer in mind, mortgage originators should make themselves familiar with the changes as well. Stay up-to-date and learn about these new types of consumer notifications:
1. Credit Score Notice
When some consumers apply for credit, theyll now expect a Credit Score Notice to be received. This document lists the consumers credit score and outlines how it compares to the scores of other individuals who are applying for the same type of loan.
Lenders need to provide this notice to all applicants regardless of the type of credit being sought. If a consumer doesnt have a credit score, the notice from the lender should include the name of the credit reporting agency that has no score on file for the consumer.
2. Adverse Action Notice
If a consumers credit score is reviewed and subsequently declined, that consumer will need to receive an Adverse Action Notice. The contents of this document include the consumers credit score and any pertinent information related to that number.
Should inaccuracies be found, applicants have the ability to check their scores and dispute the information with the credit bureau. These inaccuracies can include any of the following:
Incorrect personal information
Tradelines and collection accounts
Payment history
Information recorded as public record
Mixing of files and identities of consumers
Re-aging of debt
Information still on file thats past the statute of limitations
3. Risk-Based Pricing Notice
If consumers feel that theyre being offered new credit less favorable than that of other consumers applying for the same loan, its incumbent upon lenders to send their clients a Risk-Based Pricing Notice.
This notification alerts consumers to the possibility of inaccurate or disputable information in their credit files. An investigation resulting in the removal of inaccurate information can save consumers money while also making it easier to acquire credit on more favorable terms.
A lender also must send an Account Review Risk-Based Pricing Notice to a consumer who has an existing credit account where the annual percentage rate is increased by the lender upon review of the credit report and score. This notice delineates the factors used in determining the rate increase in order to make it easier for consumers to understand why their rate has changed.
All of these new notifications are intended to allow consumers to check the accuracy of their reports and better enable them to respond to the credit reporting agency should any changes be necessary.
Before contacting their credit reporting agency, however, consumers may want to discuss how their report is affecting the price theyre paying for borrowing, a discussion they may want to begin with mortgage professionals themselves. Keeping yourself familiar with these new types of notices can better prepare you for these discussions and, in turn, better prepare your clients to manage their finances.
Elizabeth Karwowski founded Get Credit Healthy Inc., a consumer-advocacy organization, to help individuals improve their credit health. She has FICO and Fair Credit Reporting Act certifications. Get Credit Healthy has been featured on NBC and Fox News and has helped hundreds of people restore their credit. In 2010, Karwowski began volunteering as a counselor with S.C.O.R.E., a nonprofit resource partner with the U.S. Small Business Administration. Reach her at (877) 850-3444, ext. 1, or [email protected].
