New legislation that’s come into play since the beginning of the year is certainly going to make the flow of information regarding a consumer’s credit score more prominent.
But its usefulness is in question.
It’s no secret that credit has been hard to come by the past few years as our economy continues to trudge through a steep downturn. Credit scores have come down as a result of overextension, foreclosure and maxed out credit lines.
And although there’s no guarantee that it’s bouncing back anytime soon, the Federal Reserve and Federal Trade Commission are at least going to throw us all a bone next time we’re applying for our next credit line or loan.
As of January 1, there are certain circumstances (too extensive to outline) when a consumer applies for some form of credit that they’ll receive a notice with information surrounding their credit score or credit report.
Most commonly, people will receive a simple notice entailing their score and comparing it to that of the majority of consumers. (This likely applies for a mortgage, auto loan, or credit card.)
In the event that one has applied for credit under certain terms (say, an APR of 12.99%) and the source isn’t able to give you credit at these terms, you’ll receive a “risk-based pricing notice.” What this notice likely explains is (a) the reasoning why your credit wasn’t approved at the aforementioned rate and (b) what your new rate will be. This occurs in a case when one’s credit is less than favorable but not detrimental.
Furthermore, anytime a current creditor reviews your credit (which many do on a six month basis) and determine they need to make a change, you’ll receive an Account Review Notice, which is exactly what it sounds like: it’s the company explaining that they reviewed your account, and made a change.
Ultimately, this keeps the consumer less in the dark and it gives everyone a better feel for what their score is like. The FTC isn’t holding your information in some dark abyss any longer, but they’re not offering it up easily.
But at the very least, it’s increasing communication flow between consumers and creditors, which is a step in the right direction for financial recovery of both the country and its citizens.
Previously all consumers could bank on was their free annual credit report (from www.annualcreditreport.com) and other credit reporting services like Experian, Equifax and TransUnion.
Now it’s less of a wild guess. Consumers are going to see tangible feedback when they go to apply for auto loans, mortgages and credit cards, complete with references to their own credit report.
I can’t stress enough that this is a good thing overall. And although I approve this movement, the practicality is questionable.
Let’s think—what exactly is this going to do for consumerism? Will this make people more likely to apply for credit?
People aren’t necessarily going to rush out to their regional credit union as soon as they hear this information and apply for a card. If they really needed one by now and couldn’t get it, this isn’t changing that.
There’s no direct correlation between this legislation and the availability of credit.
But does it have long term affects?
I think so. I think what’s going to happen is that within the next year more people are going to become more financially stable as a result of (a) more job opportunities (hopefully) and (b) continuing to pay down current debt/climbing out of debt. When that happens, people are going to want to get better credit cards, bigger credit lines, to refinance their mortgage, to finally get a new car, and so on.
So when they walk into a store to apply they’re still gambling, but if it doesn’t work out it’s not a complete shoot-down.
Consumers will be able to take the feedback they’re provided and make necessary adjustments to get their credit score back on track over time.
What does this mean big picture? It means that the next year might be a rebuilding year. It means that consumers might finally be fixing or improving their credit and these helpful hints are going to push them in the right direction.
It might even mean that we’ll see a rise in consumer credit within the next few years.
That’s assuming the laws stay in play that long.
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