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Originally published Saturday, August 20, 2011 at 9:49 PM

Loan rejections soon to come with explanation

The Sacramento Bee

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SACRAMENTO, Calif. — If you're not feeling a lender's love, you'll soon know exactly why you got jilted.

As of July, if a lender denies you a credit card, a car loan or other loan product based on your credit score, you're entitled to a free copy of that score.

You'll also get a list of the reasons why you got rejected. Ditto if you get a less-than-favorable interest rate on a new loan.

Some credit experts call the new rules a historic change in how consumers are treated by lenders.

It's part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which Congress enacted last year to give consumers more clarity in their financial life. The legislation also created a new Consumer Financial Protection Bureau.

The bureau's mission is to make sure consumers know exactly what they're getting with mortgages, credit cards, loans and other financial products. Or, as the bureau's fledgling website (consumerfinance.gov) notes: It's to ensure that "prices are clear up front, that risks are visible, and that nothing is buried in fine print."

And part of that clarity is knowing why you got dinged by a lender.

In the past, if you were rejected for a credit card, you might not get any explanation. Under the new rules, you'll be mailed the exact score used by the lender when reviewing your credit application.

The letter will also include the reasons why your score was considered risky: too many late payments, balances too high, too many credit-card applications, etc.

"It'll give consumers an exact picture of where they stand in the lender's eyes," said John Ulzheimer, president of consumer education for SmartCredit.com.

Just as a refresher, the mostly commonly used credit score, known as the FICO, is a three-digit number between 300 and 850. It determines how much — or how little — you'll pay for all kinds of borrowing, from student loans to credit cards to home mortgages.

The higher your score, the better your chances of getting approved for a loan and the lower your interest rate, which can mean huge savings in the long run.

For those who do get rejected or receive a less-than-ideal APR, the lender's explanatory letter "empowers consumers to actually go out and improve their score. They know why it isn't higher," Ulzheimer said.

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