If you’ve ever received a polite form letter that tells you little more than, “thanks, but no thanks” after applying for a new credit card, odds are, you were probably left feeling a bit frustrated and maybe even confused. You’re not alone. For years, consumers have found themselves looking for answers to why they were declined or were approved for a credit card with a much higher interest rate than they expected.
Now, though, and as part of the rolling release to the 2009 Credit Card Act, there’s a very good chance you’ll be receiving the information the company used to make its decision. The operative words being “good chance” because there are certain scenarios where you might discover you’re still scratching your head and wondering, “what now?”
This week, we take a look at the latest release associated with the Obama Administration’s credit card overhaul: rejection letters that also include your credit scores. We’ll also take a look at those scenarios where this new regulation won’t apply. Bottom line, however, is that it’s intended to become a strong tool for consumers to stay on top of their credit histories.
The Details
The bill reads, in part, that “…any borrower denied credit or offered a higher than usual interest rate is entitled to see his credit scores“. And this new law goes a step further: you don’t have to request it. With a decline letter, your scores will be included as part of the reasoning for the rejection. It will cost consumers nothing.
Also, for those who might be expecting a better interest rate when they apply for that new balance transfer credit card, but who are offered a much higher rate instead will also receive their credit scores along with their approval letter. Consumers will then have the option of activating their card or not. At least, that’s what the law had intended. As expected, there are certain caveats associated with this new law and some fear the loopholes are big enough for creditors to walk through without having to change status quo, so to speak.
The Exceptions
Because of the language used in the law, many critics say lenders will take advantage of ambiguous language. For instance, lenders are required to include credit scores for those they approve at a higher interest rate. The “higher interest rate” is defined is what the “lender offers most of its customers”. The question then becomes, who determines what a lender “offers most of its customers”.
How will the baseline be determined and further, how will they handle variable rates? One financial leader on Wall Street said, “Many Americans believe their credit is strong enough to apply for and get approved for a low interest credit card. What they might get is a counter-offer of a higher interest rate, which may or may not be accompanied by their credit scores, depending on how the lender calculates its average consumer rate”.
Various Data Used
Many banks have their own formulas for determining creditworthiness, which can also affect whether or not it lets its customers know their credit scores. In fact, if the formula a bank uses includes only its own data, it’s under no obligation to let the customer know. If a bank uses part of its own algorithm in tandem with traditional scoring methods, then it will only have to disclose certain aspects. It’s those certain aspects that are so confusing and frankly, those wrinkles haven’t been ironed out enough to satisfy consumer advocate groups.
Bottom Line
So what’s the best way to be sure you’re able to take advantage of these new laws? For now, anyway, it looks as though you’ll need to bypass your bank and apply for that new travel rewards credit card online. This way, if there are any problems associated with not qualifying for a lower interest rate, or if you are declined for any reason, you’ll at least be assured of receiving your credit scores. You can then move forward with any actions to remedy the situation. It may be that you’ll need to apply for a secured credit card until you can bring your scores up and improve your credit history.
In the end, though, the new law will eventually flow much smoother. Like all new guidelines associated with federal law, it does take a bit of time to get those proverbial kinks ironed out. The end goal, of course, is to provide a much better financial system for Americans as they continue to move forward with their own ideas of what the American Dream is all about.
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