June 27, 2001
New Law Will Help Consumers Better Understand How
Their Credit Score Affects Their Ability to Secure a Home Loan
SAN FRANCISCO, CA – Starting on July 1, California consumers seeking a home loan will have the right to know their credit score. Credit scores measure the relative degree of risk of delinquency or default that a borrower represents to a lender or creditor. These scores ultimately determine the ability of a consumer to secure an affordable mortgage, but have been kept secret by lenders until the California legislature passed legislation last year requiring disclosure. California is the only state that gives consumers access to this important information.
“Beginning on July 1, California consumers will finally have access to their credit scores,” said Gail Hillebrand, Senior Attorney with Consumers Union’s West Coast Regional Office. “This new law will help demystify the home loan approval process and put consumers in a better position to secure an affordable mortgage.”
Consumers who seek a home mortgage, auto loan, or credit card are assigned a credit score. The score, also called a “risk score,” is based on information in the borrower’s credit report and also on information about how other borrowers with similar information have repaid their bills. Credit scores are widely used by mortgage lenders and other lenders in evaluating loan applications.
A consumer’s credit score can be lowered by behavior that may not seem negative to most prospective homebuyers. For example, homebuyers may lose points on their score for having only one credit card or because they paid cash for their last car. However, these problems are not reflected in any obvious way on their credit report. As a result, consumers may end up paying higher loan interest rates based on information from their credit report that may appear neutral if not positive to most people.
The new California law gives consumers two ways to get their credit scores. First, lenders of home secured loans (mortgages and home equity loans) will be required to provide consumers at no charge their specific credit score, the credit information used to compile the score, and an explanation of how credit scores work in the loan approval process.
Second, consumers not applying for a home loan can obtain their credit score for a small fee from one of the credit reporting agencies: Equifax (1-800-685-1111), Experian (888-397-3742) or Trans Union (800-888-4213).
To maintain a high credit score, Consumers Union recommends that consumers check their credit reports for inaccuracies, pay all bills on time, and avoid maxing out on credit cards. Consumers should also refrain from switching credit cards frequently and should use bank or credit union credit rather than finance company credit because some credit score models treat that as negative.
“Consumers across the country should have access to their credit scores,” said Hillebrand. “We hope California’s new law will encourage other states to extend this right to their residents and prompt Congress to enact similar legislation on the national level.”
Gail Hillebrand or Michael McCauley
Consumers Union, publisher of Consumer Reports magazine, is an independent nonprofit testing, educational and information organization serving only the consumer. We are a comprehensive source of unbiased advice about products and services, personal finance, health, nutrition and other consumer concerns. Since 1936, our mission has been to test products, inform the public, and protect consumers