In 2011, two laws went into effect requiring lenders in the United States to provide consumers with important disclosures, including credit scores, which raise awareness about the use of their credit history in making credit decisions. A key goal of these regulations is to improve the accuracy of consumer credit reports, by alerting the consumer to the existence of information that may be impacting their ability to get credit or access to credit at the most favorable terms (such as a low interest rate).
The first of these regulations, the Risk-Based Pricing rule, went into effect in January 2011. The common practice of giving less favorable credit terms to higher risk consumers is known as risk-based pricing. This rule states that when a lender decides to extend you credit based on your credit score and/or credit report, they must send you a notice – either a Risk-based Pricing (RBP) notice or Credit Score Disclosure (CSD) notice – when the credit terms you received are less favorable than those offered to other consumers. Further information about the Risk-Based Pricing rule can be found on the Federal Trade Commission's web site.
The second law went into effect in July 2011. It requires that lenders provide a credit score and related information in an Adverse Action Notice sent to a consumer when they are declined for credit. In addition, the new law adds a credit score disclosure to RBP notices for those lenders who choose this disclosure option to comply with the Risk-Based Pricing rule.
The Risk-Based Pricing rule generally applies when you are approved for credit. The Adverse Action notice, which has long been part of the Fair Credit Reporting Act and Equally Credit Opportunity Act, is sent by the lender when your request for credit is declined.
If your request for credit was declined
Consumers who are declined for credit are provided a disclosure, often called an Adverse Action notice, that should accompany a declination letter though it may be sent separately. There is no standard format although the Adverse Action notice should at a minimum include information about why you were declined or guidance on where that information can be obtained.
If you are approved for credit
When you are approved for credit, you'll likely receive a notice similar in appearance to either the Risk-Based Pricing (RBP) notice or the Credit Score Disclosure (CSD) notice, shown in Figure 1 below.
- The Risk-Based Pricing (RBP) notice informs consumers that they may have received less favorable credit terms than other consumers with better credit histories. This notice is sent only to approved applicants or customers who did not receive the lender's most favorable terms. The RBP notice may be mailed separately from the credit approval letter. This notice includes information on how to obtain your free credit report and, if used in making the credit decision, the disclosure of your credit score, the score range, and the reasons why the score was not better.
- The Credit Score Disclosure (CSD) notice is used by lenders as an alternative method for complying with the Risk-Based Pricing rule. The CSD notice is sent to all consumers who apply for credit and contains their credit score as a way to provide greater understanding of how they are evaluated during the lending decision process.
If you look carefully at the top of the notice, you'll see a slight difference in the wording. The RBP notice will refer to "Your Credit Report and the Price you Pay for Credit" while the CSD notice refers to "Your Credit Score and the Price you Pay for Credit".
In some rare instances, a lender may use your credit report, but not your credit score, in the lending decision. In such cases, should the lender you send a RPB notice, a slightly different disclosure will be provided to the consumer.