| The three major credit bureaus maintain credit files on nearly 90 percent of adults in the United States. An alarming number of these files contain serious errors and could result in missed employment opportunities, loans, insurance, and increased interest rates. Keeping a 'clean' credit report is vital to your financial well-being. Credit scores affect every aspect of our financial lives, including employment opportunities and the interest rates of personal loans such as home mortgages, car loans, and even the interest rates of charge cards. Your credit report is your 'financial fingerprint' and contains information that can be grouped into the categories listed below: Living on Credit More Americans are in financial trouble than ever before, due mostly to our casual attitude about debt, escalating credit card interest rates, and a sluggish economy. Subsequently, the deeper the financial hole we dig, the more credit we need. As the line of credit is exhausted, it becomes impossible to obtain more credit because our credit reports reflect our financial foundation of 'quicksand', making it difficult to qualify for new loans, increased credit limits, or lower interest rates. The vicious cycle of robbing Peter to pay Paul eventually catches up with us and we are forced to re-evaluate our spending habits. Of course, not all consumers are 'charge-card happy' and responsibly manage their debts, yet they run into a string of ill-fated circumstances such as losing employment, incurring unforeseen medical expenses, accidents, etc. A lifetime of good credit can evaporate quickly because of a few unfortunate occurrences. Regardless, 'credit' is a way of life for most Americans, and most understand the importance of maintaining a good credit report. Since we each manage our own budget and spending habits, it's not unreasonable to believe that we have control over our own credit report and it contains accurate information about our responsibility in regards to our financial obligations. Unfortunately, we can't assume our reports are mistake-free. Seventy-nine percent of all credit reports contain inaccuracies! Given our lifestyle and the unreliability of accurate credit scoring, many consumers are seeking help. Those who don't want the frustration of battling it out with the credit bureaus, or don't have the time, patience, knowledge or desire are turning to credit repair services. |
The increased demand for credit repair has resulted in a proliferation of credit repair businesses and Internet scammers posing as credit repair businesses. These unethical opportunists have flooded the market and provided lackluster and sometimes even illegal services.
As credit repair agencies fight for your hard-earned money, many of these companies push the 'marketing' envelope, making bold claims and elaborate-sounding, yet meaningless guarantees in an attempt to stand out from the competition and win your business.
Initially, the services offered and promises made by unethical credit repair agencies seemed very appealing to those struggling to find a way out of their financial quagmire. After all, when you are sinking in the sand, it's natural to not be real selective when grasping for a nearby branch. But it this case, it pays to survey the situation a little closer before deciding on your best solution.
No legitimate credit repair business can guarantee the removal of negative information from your credit report, and no time frame can be guaranteed either. In addition to unethical promises and guarantees, some credit repair agencies have even posed as credible law firms to falsely persuade you that a retained, licensed, legal professional is working on your credit case. Don't take these types of claims at face value. Verify the information before you make any decisions about repairing your credit report.
Inaccurate credit reports affect your lifestyle and your reputation. If you don't have the time or know how to effectively resolve your credit problems yourself, consider contacting a legal firm that specializes in credit report repair services or a credit counseling service.
Conversely, when searching for credit repair services, be mindful that credit repair agencies claiming to be 'non-profit' businesses warrant no 'extra' consideration over 'for-profit' agencies. Do not equate 'non-profit' with legitimacy or affordability.
As you selectively research various credit report repair businesses, compare prices, services and guarantees, as well as the companies themselves and find out which ones are actually law firms and which are 'agencies'. Browse through their websites and see how open they are about providing helpful information, and finally, and don't hesitate to call and ask questions.
Remember, your reputation, as well as your money, is at stake. Be mindful of the following guidelines when searching for credit restoration services:
- Stay away from businesses that make statements like, "We promise to do anything to improve your credit score", or "We can erase your bad credit - 100 percent guaranteed!"
- Be wary of any credit repair agency that won't fully disclose their company information and/or verifiable identity, or provide a complete address (beyond a Post Office Box).
- Beware of companies that are unwilling to explain your legal rights as well as what you can do yourself - at no cost. Legitimate services will clearly outline their procedures for improving your credit.
- Don't deal with companies that are eager for you to invent a 'new' credit report by applying for an Employer Identification Number to use instead of your Social Security Number. It is a Federal offense to obtain an Employer Identification Number from the Internal Revenue Service under false pretenses.
These companies are recommending that you create a new credit identity. They suggest that by obtaining an Employer Identification Number (EIN) you can use that number instead of your Social Security Number to qualify for additional credit. (Of course the agency says it's a common practice and is completely legal.) If an agency asks you to make false statements on a loan or credit application, misrepresent your Social Security number, or apply for an Employer Identification Number from the Internal Revenue Service under false pretenses, you are the one who will be subjected to personal liability and prosecuted for committing fraud. Furthermore, if you follow the advice of some crooked agency and use the mail or telephone to apply for credit and provide false information you could be charged for mail or wire fraud. It's a federal offense to make false statements on a loan or credit application and/or misrepresent your Social Security Number.
There are three major credit bureaus: Equifax, Trans Union, and Experian. Together, these three bureaus compile and maintain credit files on nearly 90 percent of adults in the United States. A common public misperception is that these bureaus are government agencies or extensions of the federal government, while, in fact, they are private, for-profit companies that gather information about your credit history and sell it to businesses that are legally permitted to see your report. The businesses allowed to request your credit report include creditors such as banks and credit unions, credit card companies, mortgage lenders, and retail stores, in addition to employers, landlords, and insurance companies.
Credit bureaus compile the majority of your credit information from the creditors. The bureaus also search court records for lawsuits, judgments, and bankruptcy filings. And they go through county records to find recorded liens (legal claims).
To create a file for an individual, a credit bureau searches its database and finds entries that match the person's name, Social Security number or other identifying information. The subsequent matches are compiled to complete the report.
Credit reports also include noncredit information such as previous and/or maiden names, Social Security number, past and present addresses, employment history, marriages, and divorces. Many credit report mistakes are noncredit items, and can sometimes cause a great deal of confusion and frustration. John Thomas Doe of Stockton, CA, may have a credit report that shows a payment delinquency on a 2004 Baja H2X Powerboat, while J. T. Doe of Phoenix, AZ is waterskiing at Lake Havasu, wondering why he hasn't received his payment coupon book from the bank. It's not uncommon for creditors to mistake identities and demand payments from the wrong party, so make sure your noncredit data is accurate.
Credit data also includes information about your creditors, the type and number of each account, when the account was opened, your payment history, your amount of the loan, current credit limit, and your existing balance. The report will show if an account has been sent to a collection agency or is in dispute.
Unfortunately, an alarming number of these files (credit reports) contain serious errors and could cause the denial of credit, a loan, or a job, so monitor your credit report and minimize or eliminate future credit problems. Remember, keeping a 'clean' credit report is essential to your financial well-being.
Credit reports affect every aspect of our financial lives, including employment opportunities and the interest rates of personal loans such as home mortgages, car loans, and even the interest rates of credit cards. Your credit report is your 'financial fingerprint' and contains information that can be grouped into the categories listed below. (A percentage of the approximate emphasis assigned for each factor is shown in parentheses after the category; however, keep in mind that these figures are not 'absolute' and companies may consider different factors.)
- Payment History (35%)
- Outstanding Debt (30%)
- Length of Credit History (15%)
- Recent Inquiries (10%)
- Types of Credit Currently in Use (10%)
Credit scores range from 300 to 900, with the average score being about 750. Naturally, as your score increases, your risk to the creditor (or defaulting) decreases. Industry experience shows a direct correlation between low scores and high default rates. If you have low scores you're going to have a hard time convincing a creditor to make you a loan - or at least one with an affordable interest rate.
But oddly enough, just as your credit history may vary from credit bureau to credit bureau, so can your credit scores. It's possible to have high scores with one and low scores with another. This is one more reason to always monitor your credit report. You don't want mistakes staying on your report for years. If they do, they just become harder to eliminate.
Though your credit scores vary from bureau to bureau, it's uncommon for your score to vary dramatically; although some lenders admit to seeing borrowers with scores that vary by 100 points or more. To combat this, a lender usually averages the varying scores. Of course, that is of little consolation if your scores are 500, 550, and 700 and the interest rate for a borrower with a score of 550 is two points higher than the rate for a borrower with a score of 700. Typically, the discrepancies of the scores are not this drastic. The more common scenario is that of having scores such as 690, 705 and 685.
Don't lose hope if you have a low score. If you think the problem is caused by mistakes on your credit report, order copy of your credit report, check it for accuracy and fix the problems.
If you have a low score because of your payment history, don't despair and start taking the steps necessary today to improve your credit score. (If you are in the middle of the loan process, explain the situation to the lender. Some lenders will override credit scores if they think you are a good risk despite problems with your score.)
No one can legally remove accurate and timely negative information from a credit report. But the law does allow you to request a reinvestigation of information in your file that you dispute as inaccurate or incomplete - at no charge.
Accurate negative information generally can be reported for seven years, but there are exceptions:
- Bankruptcy information can be reported for 10 years.
- Information reported because of an application for a job with a salary of more than $75,000 has no time limitation.
- Information reported because of an application for more than $150,000 worth of credit or life insurance has no time limitation.
- Information concerning a lawsuit or a judgment against you can be reported for seven years or until the statute of limitations runs out, whichever is longer.
- Default information concerning U.S. Government insured or guaranteed student loans can be reported for seven years after certain guarantor actions.
The Fair Debt Collection Practices Act and the Fair Credit Reporting Act have been established to protect you, but you need to be aware of these and other current laws and consumer rights to effectively deal with creditors as well as dispute your credit report.
You are responsible for your debts. If you fall behind in paying your creditors or an error is made on your account, you may be contacted by a "debt collector." A debt collector is any person, other than the creditor, who regularly collects debts owed to others. This includes lawyers who collect debts on a regular basis. You have the right to be treated fairly by debt collectors (See Your Rights Under the Fair Debt Collection Practices Act below).
The Fair Debt Collection Practices Act (FDCPA) applies to personal, family, and household debts. This includes money owed for the purchase of a car, for medical care, or for charge accounts. The FDCPA prohibits debt collectors from engaging in unfair, deceptive, or abusive practices while collecting these debts.
Your Rights Under the Fair Debt Collection Practices Act:
- Debt collectors may contact you only between 8 a.m. and 9 p.m.
- Debt collectors may not contact you at work if they know your employer disapproves.
- Debt collectors may not harass, oppress, or abuse you.
- Debt collectors may not lie when collecting debts, such as falsely implying that you have committed a crime.
- Debt collectors must identify themselves to you on the phone.
- Debt collectors must stop contacting you if you ask them to in writing.
Your credit report influences your purchasing power, as well as your chances to get a job, rent or buy an apartment or a house, and buy insurance. A history of timely credit payments helps you get additional credit. Accurate negative information can stay on your report for seven years. A bankruptcy can stay on your report for 10 years. If you are having problems paying your bills, contact your creditors at once. Try to work out a modified payment plan with them that reduces your payments to a more manageable level. Don't wait until your account has been turned over to a debt collector.
- Account payment information on specific types of accounts (charge cards, retail accounts, installment loans, finance company accounts, mortgage, etc.)
- Presence of adverse public records (bankruptcy, judgments, suits, liens, wage attachments, etc.), collection items, and/or delinquency (past due items)
- Severity of delinquency (how long past due)
- Amount past due on delinquent accounts or collection items
- Time since (frequency of) past due items (delinquency), adverse public records (if any), or collection items (if any)
- Number of past due items on file
- Number of accounts paid as agreed
- Amount owing on accounts
- Amount owing on specific types of accounts
- Lack of a specific type of balance, in some cases
- Number of accounts with balances
- Proportion of credit lines used (proportion of balances to total credit limits on certain types of revolving accounts)
- Proportion of installment loan amounts still owing (proportion of balance to original loan amount on certain types of installment loans)
- Time since accounts opened
- Time since accounts opened, by specific type of account
- Time since account activity
- Number of recently opened accounts, and proportion of accounts that are recently opened, by type of account
- Number of recent credit inquiries
- Time since recent account opening(s), by type of account
- Time since credit inquiry(s)
- Re-establishment of positive credit history following past payment problems
Types of Credit Used
Number of (presence, prevalence, and recent information on) various types of accounts (charge cards, retail accounts, installment loans, mortgage, consumer finance accounts, etc.)
Additional Information
Ovation Law and the FTC are excellent educational resources and provide a wealth of helpful information for consumers to avoid unscrupulous credit repair agencies and lenders. For additional information about your consumer rights and credit report repair, visit www.OvationLaw.com and download free, informative publications from the Educational Resource Center.
The FTC works to prevent fraudulent, deceptive and unfair business practices in the marketplace. To file a complaint, visit www.ftc.gov or call toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261. The FTC enters identity theft, telemarketing, Internet, and other fraud-related complaints into a secure, online database that is available to hundreds of criminal law enforcement agencies worldwide.
