Most consumers understand that when you do not pay your bills on time, it can have an adverse impact on your credit score. However, many consumers may not realize that the opposite is also true: their credit history can affect their monthly bills, and some companies charge an added fee to the monthly bills of consumers with less than favorable credit histories. This is called risk-based pricing.
When is risk-based pricing applicable?
Risk-based pricing comes into play when a company reviews your credit history when you apply for services such as cable TV, internet service or a mobile phone account. If you have an undesirable credit rating, they can charge you more for their services than they would charge another consumer who has better credit than you.
Lenders also use risk-based pricing when they offer consumers with good credit better interest rates than those with poor credit because they are higher risk. The Consumer Financial Protection Bureau says that every lender has their own internal process for determining the risk that a consumer might default on a loan, but when a lender relies on your credit report to make a lending decision, they must send you a Risk-based Pricing Notice if you receive less favorable interest rates than a consumer with excellent credit might qualify for. Sprint received a $2.95 million fine because it violated the law by imposing a monthly fee of $7.99 on customers with a lower credit score without proper notice.
The Risk-based Pricing Notice
According to the Federal Trade Commission (FTC), a Risk-based Pricing Notice must tell you that:
- The information on your credit report has caused them to extend you less than favorable terms
- You can get a free copy of your credit report
- You have the right to dispute any mistakes on your credit report
The FTC offers this tip to consumers: When you get your next monthly bill, review it closely and see if it contains any unauthorized charges. If you find any, contact the company and ask for details. If you are unable to resolve the issue, report it to the Federal Trade Commission.
A $7.99 fee on a year’s worth of bills comes to $95.88 per year, which can add up over time. It pays to read the fine print on your monthly bills and if you are being charged Risk-based Pricing, research your credit report to see which item might be causing the problem. It very well could be an error that is costing you your hard-earned money each month.