I often get asked the question “When pulling credit through your DMS, do you include the Risk Based Pricing Notice?”. This is a great question to ask since it affects all Buy Here Pay Here dealers thinking of extending credit to an applicant based on a credit report. Before January 1st 2011 you were not required to provide such a document to the customer but new laws require that the Risk Based Pricing notice be provided with each credit report. The Risk Based Pricing notice is a separate disclosure to be provided when pulling credit that informs the applicant that they may have received less favorable credit terms than others with a better credit score. This disclosure should also include information on how they can obtain a free credit report, a disclosure of their credit score, the score range, and an explanation of why the score is what it is.

The reason the Risk Based Pricing notice is being enforced is to establish a common practice that lenders can use to set credit terms, such as interest rate or credit limit, based on an applicants stated credit risk. It has also been found that lenders using the risk-based pricing model will typically extend more favorable terms to applicants with credit scores that reflect lower risk and less favorable terms to those whose credit scores reflect a higher risk.

On the other side of the coin, it benefits the applicant in helping them to understand why they are being offered more unfavorable terms than others with a higher score. Not only does it inform the borrower that their credit history is being used to set the terms, but it also provides information to help them find, research and verify the accuracy of their credit report. Besides that, the Risk Based Pricing notice serves to raise awareness of the importance of understanding their credit report and credit score.