If you recently applied for credit, you may have received a notice from your lender titled "Your Credit Score and the Price You Pay for Credit." If so, you have received a Credit Score Disclosure (CSD) notice that provides your credit score and other important related information, in compliance with the Risk-Based Pricing rule. The CSD notice is one of two types of disclosures designed to increase awareness that your credit history is being used by a lender to make a decision to extend you credit. This type of notice is sent to all approved applicants. Lenders can use the Risk-Based Pricing (RBP) notice instead of a CSD notice as an alternative method of complying with the regulation.
The Risk-Based Pricing rule went into effect in 2011. Risk-based pricing reflects the common practice of setting credit terms, such as interest rate or credit limit, according to a consumer's credit risk. Lenders that employ risk-based pricing generally offer more favorable terms to consumers who have credit histories that reflect lower risk and less favorable terms to those whose credit histories reflect higher risk.
The Risk-Based Pricing regulation is intended to broaden the understanding of credit reports and credit scores, as well as improve the accuracy of your credit report. The CSD notice includes not only your credit score – the one that was used in making the credit decision – but other important information that helps you check and improve your credit health. A sample of the two-page CSD notice can be found in Figure 1 below. Also, it is important to be aware that regulations which went into effect in July 2011 do not impact those lenders that choose to send CDS notices to comply with the Risk-Based Pricing Rule.
The credit score (your score) used in making the lending decision. Also shown are the date of the score and the name of the credit reporting agency which provided your credit report that served as the basis for generating your score. It's important to remember that your score may differ depending on the credit reporting agency and may also change over time due to changes in your credit history.
The range of credit scores associated with the model used to generate your score. Higher credit scores represent lower risk.
The distribution of credit scores – for the scoring model used to generate your score – shown in either a graphical or text format. You should be able to clearly see how your score compares to other consumers.
You have the right to dispute inaccurate information in your credit report.
Instructions regarding how to access your credit report from each nationwide consumer reporting agency at no-charge one time every 12 months. Please note that credit reports do not include your credit score. Credit scores are typically available on a fee basis.
The notice contains four key elements:
- Your credit score – The credit score, which is statistically derived using information in your credit report, is a strong predictor of credit risk. As a result, it is frequently a component in determining whether you are approved for financing and the quality of the terms you're offered. In most cases, the credit score provided in the notice is the FICO® Score. FICO® Scores are used by all of the top 50 largest financial services companies in the U.S.
- The numerical range of the credit score – The general-risk FICO® Scores which are in use today by the vast majority of lenders all fall within the 300-850 score range, where a higher score reflects lower credit risk. Industry-specific FICO® Scores, such as those for auto lending or bankruptcy prediction, were developed to accommodate the unique characteristics of their respective industry and may have ranges outside the 300-850 score range. The score range of the scoring model used by your lender will be clearly documented in your disclosure notice allowing you to see where your score falls in that range.
- A comparison of your score to the overall population – Since risk-based pricing generally provides better terms to consumers with better (higher) credit scores, it's important to understand how your score compares to others. This information may be presented in the CSD notice in either of two ways.
The first method is presented in text format and indicates, as a simple percentage, how your score ranks compared to all U.S. consumers. The higher the percentage, the more likely you are to have received the most favorable terms from your lender.
The second method of comparison is a graph summarizing the percentage of U.S. consumers in each score band. Using your score along with the chart makes it possible to see where you fall in the range. It should be noted that people with scores falling in bands represented by the two right-most bars are likely to have received the most favorable terms while those at the opposite end likely received less favorable terms.
- Information on how you can obtain a copy of your credit report – Under U.S. law you are entitled to receive a free copy of your credit report from each of the nationwide credit reporting agencies once every 12 months. Note this is the credit report only and does not include the credit score which is a key component in the lender decision making process. While your FICO® Score was likely included in the CSD notice, it should be reviewed periodically and can be obtained with your credit report for a fee.
A CSD notice received in connection with the approval of a loan secured by one to four units of residential real property (such as a mortgage or home equity line of credit) will include an extra section entitled "Key factors that adversely affected your credit score". Refer to Figure 2, below, for an example of the relevant portion of this notice. In the "Key Factors" section you will find up to five brief remarks – commonly known as score reasons or score factors – that explain what aspects of your credit history most significantly influenced your credit score. The FICO® Score Factors Guide offers a summary list of the most common types of FICO® Score reasons. This is valuable information that can serve as a general guide for what you need to do to improve your FICO® Score.
ScoreInfo.org offers the insights you need to manage your credit health. Visit Tips for a Better FICO® Score, Credit Basics and FICO® Score Basics to find out more.