Maintaining Your Credit
All business, from banks to apartment complexes, request credit reports on new applicants. Although it can be time-consuming, it is important that you examine your credit report and have any false, misleading or incomplete information removed.
What is the Fair Credit Reporting Act (FCRA)?
The FCRA protects consumers against unfair and erroneous descriptions in credit reports. All consumers have basic rights that require that mistakes on credit reports be corrected in a timely manner.
What will I see on my credit report?
Information on credit reports is coded. However, the FCRA requires that symbols and coding be explained on the credit report. Before you begin to digest the information on your report, you must make yourself familiar with the coding, particularly the past due symbols.
TIP: Accounts with late payments are marked according to the lateness of the payment. There are symbols for 30-, 60- or 90-day periods. For example, a credit card account might have some zeros (0) indicating no late payments, a one (1) indicating a payment made after 30 days, a two (2) for a 60-day late payment, i.e., two billing cycles went by without a payment and/or a three (3) for payments that are 90 days past due.
Credit reports also include comments, such as "judgment" or "bankruptcy." Obviously, these comments have a negative impact on your credit history and score. Some comments are coded and must be deciphered. For example, "charged to P&L" means a company has charged your account off to profit and loss, meaning your account has been classified as a bad debt that cannot be collected.
Negative, and positive, credit information does not stay on your credit report forever. Under the FCRA, certain information, such as charge-offs, must be dropped from the report after 7 years. For example, after 7 years, a Sears charge account with a balance of $1,000 that was never paid and charged off must be deleted from your report.
TIP: Creditors often attempt to "re-age" the account so the 7-year time limit is extended. Re-aging is illegal. For example, an account that was charged off years ago may not be sent to a collection agency in the sixth year in order to restart the 7-year time limit. The 7-year timeline begins the date of the original charge-off.
What is a credit score?
Your credit score is currently the most important factor in obtaining credit. Your score is a number assigned to you on the basis of your credit history and other factors (employment, income, home ownership) and is between 300 and 900. The higher the score, the better your chances are at obtaining credit.
TIP: Do not apply for a bank loan, mortgage, personal line of credit or even a credit card without finding out your credit score. If you have a low score, you will be denied credit and your score may drop because of the inquiry.
SIDEBAR: Credit scores are based on information found in an individual's credit report. If it is not on the credit report, it will not be factored into the score.
How is my credit score determined?
The score is calculated by weighting specific items in the credit report, typically:
- 35 percent on payment history (late payments)
- 30 percent on the total amount currently owed
- 15 percent on the length of your credit history (young people have lower scores because their credit history is short)
- 10 percent on the number of new credit accounts opened or applied for (fewer accounts and applications is better)
- 10 percent on the credit account mix (mortgages, credit cards, installment loans)
How are credit scores ranked?
Your credit is ranked, for the purposes of obtaining credit, loans and better interest rates, as follows:
Excellent: Over 750
Very Good: 720 or more
Acceptable: 660 to 770
Uncertain: 620 to 660
Risky: less than 620
What factors lower my credit score?
One reported late payment could lower your score 50 points; several late payments drop your score a 100 points or more. Other reasons your score is lowered are:
- derogatory public record, such as a bankruptcy or outstanding judgment
- proportion of balances to credit limits is too high
- accounts referred to collection agencies
- accounts that have been charged off
TIP: Your credit score is not a part of the credit report you can obtain from the credit bureaus.
SIDEBAR: The credit score or FICO score is calculated by Fair, Isaac and Co. You can access your credit score, for a fee, at www.myfico.com/.
Is it possible to improve my credit score?
Yes. Typically, you must clean up your credit report by having all erroneous information removed. For example, a credit card account that has been closed should be corrected if it is shown as open on the report. Late payments that were never late can be removed. Additionally, your Social Security number or name could be wrong and it is possible your credit is being mixed up with another persons.
TIP: The Federal Trade Commission publishes information on disputing credit report errors at www.ftc.gov/bcp/edu/pubs/consumer/credit/cre21.shtm.
How do I go about cleaning up my credit report?
You must follow certain steps:
- Contact all three credit bureaus and obtain copies of your credit reports (you are entitled to one free report every year)
- Use the form that comes with each of the reports to dispute erroneous information with each credit bureau. Alternatively, you can write a letter to the agencies. A sample form letter is available on the FTC Web site at www.ftc.gov/bcp/edu/pubs/consumer/credit/cre21.shtm.
- Send in the dispute forms via certified mail so that you can track the running of the 30-day time period for verification.
PO Box 2104
Allen, TX 75013-2104
PO Box 740241
Atlanta, GA 30374-0241
PO Box 1000
Chester, PA 19022
TIP: Free credit reports can be obtained through www.annualcreditreport.com, or Annual Credit Report Request Service, PO Box 105281, Atlanta, GA 30348-5281.
TIP: Try not to dispute more than three to five items at once; otherwise, your disputes may be deemed frivolous.
SIDEBAR: By law, the credit bureau must verify the information you are disputing is accurate. If the information is not verified, it must be removed. It is not uncommon for creditors to simply fail to respond, resulting in removal of the information.
TIP: Because it is common for the 30-day time frame for verification to expire, information that is not necessarily inaccurate can be disputed and possibly removed. Disputed information that cannot be verified must be deleted from your file.
TIP: Credit repair can be complex, complicated and stressful. There are many Web sites devoted to helping consumers make their way through the credit bureau bureaucracy. A good site for information on how to plan a strategy is http://creditboards.com/.
Can I just contact the department store that has mistakenly reported late payments and get it to correct the information on my report?
No. The actual creditor (in this case, a department store) is not required by law to fix its errors. The store may or may not contact all three credit bureaus to correct the information.
TIP: If the creditor agrees to make corrections, ask for something in writing to confirm their promise.
TIP: Ask creditors who are correcting errors to provide you with a copy of the UDF (universal data form) that they send to the credit bureaus. The UDF should specify the changes the creditor wants made on the report (updated balance, deletion of late payments).
Do I dispute the inaccurate information with the creditor or the credit bureau?
Although you can dispute the information with the original creditor (e.g., a department store), you should dispute with the credit bureau as only they must meet certain legal requirements for investigating errors.
My credit report has a serious error that the credit bureaus refuse to fix. What can I do?
You must file a lawsuit. It is not uncommon for errors to go uncorrected.
I have a credit card account that was charged off over 7 years ago but it shows activity as recently as last year. The credit bureau refuses to drop the account. What do I do?
Your account has been re-aged. The creditor reported activity on the account in order to extend the 7-year drop-off time. This type of activity is prohibited by the FCRA. You should write the credit bureau, inform them that the account has been impermissibly re-aged and remind them that they may be subject to a $2,500 fine if the account is not dropped from your credit report.
Why does the collection agency show up on my credit report instead of the creditor?
Creditors often turn over accounts to collection agencies. The transfer to a collection agency is noted on your report and is a negative entry. The agencies then report information to credit bureaus. For example, Book-of-the-Month club could give your unpaid account to a collection agency. The fact that a collection agency is now attempting to collect is noted on the credit report.
You have the right to ask for verification from the collection agency of the alleged debt you owe. They must provide you with a copy of the original paperwork with your signature confirming that you do indeed owe the creditor. A computer printout from the creditor is not proof of the debt.
Collection agencies that are unable to verify the consumer's debt through proper paperwork are required to delete negative information provided to credit bureaus on that consumer.
Does applying for lots of credit cards improve my credit history?
No. In fact, excessive applications are a negative factor. Every application is noted on your credit report-too many and creditors begin to think you are going to overextend yourself.
How many times a year can I dispute information on my credit report?
You can challenge the accuracy of your credit report at any time. There is no limit on the number of times or items you can dispute; however, you must allow 90 days between each separate dispute letter.
TIP: Your dispute letter can challenge several different items or accounts. You do not have dispute one account at a time.
Who corrects erroneous information on my credit report?
The credit bureaus that create the report make corrections by deleting incorrect information, removing expired information and making other changes that provide an accurate description of your credit history.
Is negative information on my credit report forever?
No. The FCRA requires that accounts that have been placed for collection or written off must be dropped from your credit report after 7 years. Creditors are required to report the actual month and year the account first became delinquent.
SIDEBAR: The charge- or write-off date is used by the credit bureaus to measure the maximum 7-year reporting period permitted under the FCRA.
How long does it take before a credit bureau looks into my dispute?
The credit bureau must investigate the dispute within 30 days of receiving your complaint.
TIP: If you send additional information to the credit bureau during the 30-day period, the time for reinvestigation is extended another 15 days.
TIP: Credit bureaus, such as Experian, allow you to make disputes online and check the status of the disputes online as well.
How does the credit bureau determine if the information I am disputing is inaccurate?
The credit bureau asks the creditor that is reporting the information to verify it. For example, if Sears is reporting that you made your payments late six times 2 years ago, the credit bureau asks them to verify the payments were actually past due.
Are credit bureaus required to investigate all disputes?
Surprisingly, credit bureaus can determine that a dispute is "frivolous or irrelevant" and, under the law, do not have to investigate such disputes.
How does a credit bureau decide if my dispute is frivolous or irrelevant?
The fact checker looks for certain indications such as:
- disputing a large number of accounts (more than three or four), indicating you are attempting to have derogatory information removed by overwhelming the credit checker
- use of form letters derived from Internet sources
- failing to specifically point out the erroneous information
TIP: Letters sent by certified mail indicate you are serious about your dispute. This also gives you a record of the exact date the dispute was received, allowing you to calculate the 30-day deadline for the credit bureau's response.
What happens to the inaccurate information if the credit bureau is unable to verify it with the creditor?
If the information you have disputed or challenged is not verified by the creditor within 30 days, it must be removed. It is common for creditors to miss the deadline, fail to reply altogether or simply be unable to verify old information.
TIP: Even information that is not necessarily inaccurate can be disputed, and possibly removed, as there is a chance the creditor will miss the deadline or be unable to verify. This is especially true of information, such as late payments, that is several years old.
Why does my credit report list companies that have made inquires about my credit?
Inquires typically mean that you are applying for credit. Too many inquiries indicate you are seeking excessive credit and may be in financial trouble. Credit bureaus use this information to help formulate a credit score.
TIP: Inquiries are categorized as hard or soft. A hard inquiry is one where the company pulls your entire credit report to determine if you qualify for a credit card or loan. A soft inquiry is usually a limited view of your credit history to determine if you should be extended a credit offer. Promotional credit card offers that come through the mail are typically a result of a soft inquiry. Until you apply for one of the cards, your credit report is not pulled.
My credit report lists a company I never heard of as making a credit inquiry. What is this about?
It appears that you applied for credit from that company so that they were authorized to pull your credit report. If you did not apply for credit or authorize the company to look into your credit history, the company has made an illegal hard inquiry.
How do I get an illegal hard inquiry removed?
Write to the credit bureaus that show the inquiry on their reports and inform them that the inquiry was never authorized.
I was denied credit because of an inquiry on my report I never authorized. Do have a legal recourse?
Yes. Companies that illegally, and without authorization, pull your credit history have broken the law. The FCRA allows you to sue the company and recover damages.
SIDEBAR: A company can only make credit inquiries on a consumer for a permissible purpose. Permissible purposes include:
- credit transactions (applying for a loan)
- employment purposes
- insurance underwriting
- government financial responsibility laws
- court orders and/or subpoenas requiring the information
- written authorization of the consumer
- legitimate business needs
TIP: Collection agencies hired by creditors to collect a debt are permitted to access your credit report.
I never received a response from the credit bureau to a dispute letter I sent over 30 days ago. What do I do?
Document the fact that you did not receive a reply by sending another dispute letter and noting that your previous letter received no response. The second letter should also be sent certified mail. Your goal is document the credit bureau's omissions.