A new law goes into effect Thursday that requires creditors to inform consumers why they were rejected for a loan.
As part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, consumers who are rejected for student loans, automobile loans or credit card applications are entitled to receive a free copy of their credit score and an explanation of why they were turned down. The reasons can range from late payments to maxing out credit cards. Creditors are also supposed to explain where the score, known as FICO, ranks nationally, and outline the factors that brought the score down.
The law does not require insurance agencies or utility and phone companies with special rating systems to report credit scores.
Consumers are entitled to a free credit report once a year from each of the credit rating agencies. (To get those, go to www.annualcreditreport.com.) A fee is usually charged for the credit score, however. Only one-third of Americans know their credit score, according to the National Bureau of Economic Research.