De-mystify the Business of Credit
Getting a Handle on the “Ins and Outs” of Credit Is Core for Small Business Owners and Consumers
In an ever-evolving attempt to de-mystify the business of credit and make it easier understand the Board of Governors of the Federal Reserve System introduced notification rules. They laid out guidelines and “how to’s” for small business owners and consumers to secure greater empowerment. Small business owners and consumers now have a broader access to their credit file information allowing them to readily check and correct any recorded inaccuracies and at the same time understand “why.
Here Are Five Small Business and Consumer Scenarios and How to Approach Each
1. When Applying for Credit
When applying for credit, a Credit Score Notice is expected to be received. This document states your credit score and information on how your score compares to others applying for the same type of loan. Lenders would provide this notice to all credit applicants no matter what type of credit is being sought/offered. A sample of the new Credit Score Notice can be found here.
No matter what type of loan applied for, mortgage, auto loan, or other types of credit, you must be provided a Notice regardless of the terms of credit offered by the lender. Should you not have a credit score, the Notice from the lender would include the name of the Credit Reporting Agency that has no credit score on file for you.
2. Declined Credit
When the lender reviews your credit score and declines you credit, you will receive an Adverse Action Notice. The contents of this document include your credit score and any related information pertaining to that score number. As a credit applicant who has been declined, you should check your score and if any inaccuracies are found, contact the credit bureau to dispute the information.
Human error in recording information or in some cases the lack of reporting, is the biggest cause of a consumer being refused credit. Mistakes made in the following areas can lead to lenders not granting you a loan.
These include; incorrect personal information (name, address, social security number and more), trade lines and collection accounts, payment history, information recorded as public record, mixing files and identity of consumers, re-aging of debt, information still on your file past the statue of limitations, identity theft, and more.
3. Credit on Less Than Favorable Terms
If you are being offered new credit but at a higher rate and less than favorable terms than other consumers applying for the same loan, it is incumbent upon the lender to send you a Risk-Based Pricing Notice.
A notification of this type should alert you to the possibility of inaccurate and disputable information on your credit file. A thorough investigation affecting removal of inaccurate information can save consumers money and at the same time make it easier to acquire credit on more favorable terms.
More on credit on less than favorable terms…
On an existing credit account where the APR is increased by the lender upon review of the consumers credit report and score, also necessitates sending an Account Review Risk-Based Pricing Notice. The factors used in determining the rate increase by the lender are tabled in this report making it easier for consumers to understand “why.”
The intent of these new Notifications is to allow the individual to check the accuracy of his credit report and should mistakes be found, be better able to respond to the Credit Reporting Agency and make the necessary changes.
4. What to Do Upon Notice
The first thing to do is to read the notice and make sure you understand all that is printed there. Doing this will help make some sense of how your credit report/score affects the price you pay for borrowing. Your lender can help explain the details.
Review a copy of your credit report especially if the score the lender has given you is quite a bit lower than. You are allowed one free “pull” of your credit report on an annual basis from the CRA’s.
5. Right the Wrongs
Should you discover errors on your credit report, errors that lower your score, you may dispute the information and if successful have it deleted from your file or corrected. Start this process by contacting the Credit Bureau that issued your report. To find out more about initiating a dispute or have questions answered Get Credit Healthy can assist.
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