This week, the Federal Reserve published a new, online guide for consumers that explains a lot of the confusing things about credit reports and credit scoring. A lot of regulatory changes have been made recently when it comes to financial regulation and consumer protection, so this new document is meant to help consumers know their rights and how to exercise them.
Your credit score is obviously a very important number if you want to buy a home, finance a car, take out a loan, even rent an apartment or get a job in some cases, but it’s not always clear what goes into making that number as high (or as low) as it is.
The new Fed guide aims to cut through the confusion. In an easy-to-read Q&A format written in plain English, it deciphers questions like “What is a credit report?” and “What can cause my credit score to change?” The guide also provides contact information for all three of the major credit bureaus so you can contact them if you notice an error on your credit report. Correcting errors is important since they can pull your score down even if you’re financially savvy.
I think it’s good that the Federal Reserve is doing this and I think it’s generally good that it’s providing consumer information,” Josh Frank, senior researcher at the Center for Responsible Lending, tells WalletPop. “It’s good that there’s a place consumers can go if they don’t want to trust a private site they don’t know,” he adds. Frank says that while it’s good the guide is written in a simple, basic style, this also means it doesn’t delve into the nuances of credit scores and reporting. It’s a good crash course for someone who is wholly unfamiliar with credit and how the system works; it’s also a good resource for people who don’t know what to do about an error on their report.
Frank also points out that consumer watchdog sites might give consumers more information about how to stand up for their rights. “The Fed also needs to be very neutral in its approach, and some of the places that are more on the consumer’s side may give information that can be more favorable to consumers,” he says. Advocacy groups like U.S. PIRG and the National Consumer Law Center are two websites people can go if they’re having a problem that isn’t addressed by the Fed’s guide. If, for instance, a credit bureau won’t remove an incorrect piece of information, these watchdog groups are a good place to turn.
In all, though, Frank says the guide serves a useful purpose and is a welcome entrant to the available consumer education about credit.