What Is a Credit Score Exception Notice?

A credit score exception notice is a communication consumers may receive when applying for credit. This notice serves as a disclosure related to how a credit score was used in a lending decision. Understanding its purpose is important for anyone engaging with financial institutions for credit products.

Understanding the Notice

A credit score exception notice provides understanding of how a credit score factored into a credit decision. Its primary purpose is to inform a consumer when their credit score was used by a lender, but was not the main reason for a denial or for being offered less favorable terms. This notice acts as a transparency measure.

Financial institutions issue this notice as a compliance option to satisfy regulatory requirements. It is an alternative to a risk-based pricing notice, typically sent when credit is offered on less favorable terms due to a credit report. The issuance of this notice falls under regulations like the Fair Credit Reporting Act (FCRA) and the Equal Credit Opportunity Act (ECOA), which mandate disclosures to consumers regarding credit decisions.

When a Notice Is Issued

A credit score exception notice is issued under specific circumstances related to credit applications. Lenders provide this notice when a credit score is part of the decision-making process for extending credit, but the score is not the primary factor leading to an adverse action, such as a denial, or to offering less favorable terms. This notice is often provided as an alternative to a risk-based pricing notice, especially for certain types of loans.

If a credit score were the direct reason for an adverse action, a different notification, known as an Adverse Action Notice, would typically be sent. The credit score exception notice clarifies that while the score was considered, other factors were more influential in the outcome of the application, particularly if the outcome was not a denial.

Information Contained in the Notice

A credit score exception notice is legally required to include specific details to ensure transparency for the consumer. The notice states that a credit score was used in the credit decision and provides the actual credit score obtained by the lender. It also typically includes the range of possible credit scores under the scoring model used, helping the consumer understand where their score falls within the overall spectrum.

The notice must list up to four key factors that negatively affected the credit score. The name of the credit bureau that supplied the score is also disclosed. The notice informs the consumer of their right to obtain a free copy of their credit report from the credit bureau.

Responding to the Notice

Upon receiving a credit score exception notice, consumers can take several actionable steps to understand their credit standing better. It is advisable to review the notice carefully for accuracy, verifying the credit score and the listed factors. The notice will typically identify the credit bureau that provided the score, enabling the consumer to request a free copy of their credit report from that agency. Federal law, specifically the FCRA, grants consumers the right to obtain a free credit report from each nationwide credit reporting agency once every 12 months.

Reviewing the credit report allows consumers to check for any discrepancies or inaccuracies. If errors are identified, they should be disputed directly with the credit bureau. Understanding the factors listed in the notice can provide insights into improving a credit profile. This notice primarily serves an informational purpose, offering a snapshot of how a credit score was viewed by a lender, and does not usually require direct action with the lender unless an error needs to be corrected.