Under new rules, lenders and creditors who deny a consumer’s application for a loan or credit card will be required to disclose the credit score and other factors they used to make their decision.
The rules, which are part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, will go into effect July 21, when the newly created Consumer Financial Protection Bureau begins formal operations, according to CNN.
The regulations are intended to provide more transparency into lenders’ decision-making process and to provide borrowers with a better idea on where they stand, the Associated Press reports.
Lenders will also have to notify a rejected consumer about the date of the inquiry and provide the name of the consumer reporting agency used.
Under the current system, potential borrowers have several credit scores because the three credit bureaus – Equifax, Experian and TransUnion – each issue their own credit scores. The new rules require lenders to provide the score that was used to make the decision as well as the range of possible scores, the AP reports.
Only consumers who are denied a loan or credit card will receive the free copy of their score. Any consumer, however, is entitled to one free annual credit report from each of the credit bureaus.
The rules close a loophole in regulation that went into effect earlier this year that allowed lenders to choose how to provide the disclosure.