Building A Better Credit Record
Newspapers, radio, TV and the Internet
are filled with advertisements that offer-for a fee-to
erase accurate negative information in your credit file.
The scam artists who run these ads can't deliver. Only
time, a deliberate effort, and a plan to repay your
bills will improve your credit record. This publication
is designed to help you understand and legally improve
your credit report. This publication has five sections:
Section
1: Explains how consumer reporting agencies work
and your rights under the Fair Credit Reporting Act.
Section
2: Explains how you can legally improve your credit
report.
Section
3: Offers tips on dealing with debt.
Section
4: Cautions you about credit-related scams and how
to avoid them.
Section
5: Lists resources for additional information.
Consumer Reporting
Agencies
If you've ever applied for a credit
card, a personal loan, or insurance, there's a file
about you. This file contains information on where you
work and live, how you pay your bills, and whether you've
been sued, arrested, or filed for bankruptcy.
Companies that gather and sell this
information are called Consumer Reporting Agencies (CRAs).
The most common type of CRA is the credit bureau. The
information CRAs sell about you to creditors, employers,
insurers, and other businesses is called a consumer
report.
The Fair
Credit Reporting Act (FCRA)
The FCRA is designed to promote accuracy and ensure
the privacy of information used in consumer reports.
Recent amendments to the Act expand your rights and
place additional requirements on CRAs. Businesses that
supply information about you to CRAs and those that
use consumer reports also have new responsibilities
under the law.
Here are some questions consumers
commonly ask about consumer reports and CRAs-and the
answers.
Q. How do I find the CRA
that has my report?
A. Contact the CRAs listed in the Yellow Pages under
"credit" or "credit rating and reporting."
Because more than one CRA may have a file on you,
call each until you have located all the agencies
maintaining your file. The three major credit bureaus
are:
In addition, anyone who takes action
against you in response to a report supplied by a
CRA-such as denying your application for credit, insurance,
or employment-must give you the name, address, and
telephone number of the CRA that provided the report.
Q. Do I have a right to
know what's in my report?
A. Yes, if you ask for it. The CRA must tell you everything
in your report, including medical information, and
in most cases, the sources of the information. The
CRA also must give you a list of everyone who has
requested your report within the past year-two years
for employment related requests.
Q. Is there a charge for
my report?
A. Sometimes. There's no charge if a company takes
adverse action against you, such as denying your application
for credit, insurance or employment, and you request
your report within 60 days of receiving the notice
of the action. The notice will give you the name,
address, and phone number of the CRA. In addition,
you're entitled to one free report a year if you certify
in writing that (1) you're unemployed and plan to
look for a job within 60 days, (2) you're on welfare,
or (3) your report is inaccurate because of fraud.
Otherwise, a CRA may charge you up to $9.00 for a
copy of your report.
Even if you have not been denied
credit, you may want to find out what information
is in your credit report. Some financial advisors
suggest that you review your credit report periodically
for inaccuracies or omissions. This could be especially
important if you're considering a major purchase,
such as buying a home or a car. Checking in advance
on the accuracy of the information in your credit
report could speed the credit-granting process.
Q. What type of information
do credit bureaus collect and sell?
A. Credit bureaus collect and sell four basic types
of information.
Identification
and employment information
Your name, birth date, Social Security number,
employer, and spouse's name are routinely noted. The
CRA also may provide information about your employment
history, home ownership, income, and previous address,
if a creditor requests this type of information.
Payment
history
Your accounts with different creditors are listed, showing
how much credit has been extended and whether you've
paid on time. Related events, such as referral of an
overdue account to a collection agency, may also be
noted.
Inquiries
CRAs must maintain a record of all creditors who have
asked for your credit history within the past year,
and a record of those persons or businesses requesting
your credit history for employment purposes for the
past two years.
Public record
information
Events that are a matter of public record, such as bankruptcies,
foreclosures, or tax liens, may appear in your report.
Improving
Your Credit Report
Under the law, both the CRA and the
organization that provided the information to the CRA,
such as a bank or credit card company,
have responsibilities for correcting inaccurate or incomplete
information in your report. To protect all your rights
under the law, contact both the CRA and the information
provider if you have a dispute.
First, tell the CRA in writing what
information you believe is inaccurate. Include copies
(not originals) of documents that support your position.
In addition to providing your complete name and address,
your letter should clearly identify each item in your
report you dispute, state the facts and explain why
you dispute the information, and request deletion or
correction. You may want to enclose a copy of your report
with the items in question circled. Your letter may
look something like the one below. Send your letter
by certified mail, return receipt requested, so you
can document what the CRA received. Keep copies of your
dispute letter and enclosures.
Date
Your Name
Your Address
Your City, State, Zip Code
Complaint Department
Name of Credit Reporting Agency
Address
City, State, Zip Code
Dear Sir or Madam:
I am writing to dispute the
following information in my file. The items I
dispute also are encircled on the attached copy
of the report I received.
This item (identify item(s)
disputed by name of source, such as creditors
or tax court, and identify type of item, such
as credit account, judgment, etc.) is (inaccurate
or incomplete) because (describe what is inaccurate
or incomplete and why). I am requesting that the
item be deleted (or request another specific change)
to correct the information.
Enclosed are copies of (use
this sentence if applicable and describe any enclosed
documentation, such as payment records, court
documents) supporting my position. Please reinvestigate
this (these) matter(s) and (delete or correct)
the disputed item(s) as soon as possible.
Sincerely,
Your name
Enclosures: (List what
you are enclosing) |
- CRAs must reinvestigate the item(s) in question-usually
within 30 days-unless they consider your dispute frivolous.
They also must forward all relevant data you provide
about the dispute to the information provider. After
the information provider receives notice of a dispute
from the CRA, it must investigate, review all relevant
information provided by the CRA, and report the results
to the CRA. If the information provider finds the
disputed information to be inaccurate, it must notify
all nationwide CRAs so that they can correct this
information in your file.
- Disputed information that cannot be verified must
be deleted from your file.
- If your report contains inaccurate information,
the CRA must correct it.
- If an item is incomplete, the CRA must complete
it. For example, if your file showed that you were
late making payments, but failed to show that you
were no longer delinquent, the CRA must show that
your payments are now current.
- If your file shows an account that belongs only
to another person, the CRA must delete it.
- When the reinvestigation is complete, the CRA must
give you the written results and a free copy of your
report if the dispute results in a change. If an item
is changed or removed, the CRA cannot put the disputed
information back in your file unless the information
provider verifies its accuracy and completeness, and
the CRA gives you a written notice of its intent to
reinsert the items that includes the name, address,
and phone number of the provider.
- If you request, the CRA must send notices of any
correction to anyone who received your report in the
past six months. You can have a corrected copy of
your report sent to anyone who received a copy during
the past two years for employment purposes. If a reinvestigation
does not resolve your dispute, ask the CRA to include
your statement of the dispute in your file and in
future reports.
- In addition to writing to the CRA, you should tell
the creditor or other information provider in writing
that you dispute an item. Be sure to include copies
(not originals) of documents that support your position.
Many providers specify an address for disputes. If
the provider continues to report the disputed item
to any CRA after receiving your notice, it must include
a notice that you dispute the item. If you are correct-that
is, if the information is not accurate-the information
provider may not report it again.
Accurate
Negative Information
When negative information in your report is accurate,
only the passage of time can assure its removal. Accurate
negative information generally can stay on your report
for seven years. There are certain exceptions:
- Bankruptcy information may be reported for 10 years.
- Credit information reported in response to an application
for a job with a salary of more than $75,000 has no
time limit.
- Information about criminal convictions has no time
limit.
- Credit information reported because of an application
for more than $150,000 worth of credit or life insurance
has no time limit.
- Default information concerning U.S. Government insured
or guaranteed student loans can be reported for seven
years after certain guarantor actions.
- Information about a lawsuit or an unpaid judgment
against you can be reported for seven years or until
the statute of limitations runs out, whichever is
longer.
Seven-year
Reporting Period
There is a standard method for calculating the seven-year
reporting period. Generally, the period runs from the
date that the event took place.
With regard to any delinquent account
placed for collection-internally or by referral to a
third-party debt collector, whichever is earlier-charged
to profit and loss, or subjected to any similar action,
the seven-year period is calculated from the date of
the delinquency that occurred immediately before the
collection activity, charge to profit and loss, or similar
action. For example, assume that your payments on a
loan were late in January, but that you caught up in
February. You were late again in May, but caught up
in July. You were again late in September, but did not
catch up before the account was turned over to a collection
agency in December. You made no more payments on the
account, and it is charged to profit and loss in July
of the following year.
Under the FCRA, the January and May
late payments each can be reported for seven years.
The collection activity and the charge to profit and
loss can be reported for seven years from the date of
the September payment, which was the delinquency that
occurred immediately before those activities.
Adding Accounts
to Your File
Your credit file may not reflect all your credit accounts.
Although most national department store and all-purpose
bank credit card accounts will be included in your file,
not all creditors supply information to CRAs: Some travel,
entertainment, gasoline card companies, local retailers,
and credit unions are among those creditors that don't.
If you've been told that you were
denied credit because of an "insufficient credit
file" or "no credit file" and you have
accounts with creditors that don't appear in your credit
file, ask the CRA to add this information to future
reports. Although they are not required to do so, many
CRAs will add verifiable accounts for a fee. However,
understand that if these creditors do not report to
the CRA on a regular basis, the added items will not
be updated in your file.
Dealing
with Debt
Are you having trouble paying your
bills? Are you getting dunning notices from creditors?
Are your accounts being turned over to debt collectors?
Are you worried about losing your home or your car?
You're not alone. Many people face
financial crises at some time in their lives. Whether
the crisis is caused by personal or family illness,
the loss of a job, or simple overspending, it can seem
overwhelming, but often can be overcome. The fact of
the matter is that your financial situation doesn't
have to go from bad to worse.
If you or someone you know is in financial
hot water, consider these options: realistic budgeting,
credit counseling from a reputable organization, debt
consolidation, or bankruptcy. How do you know which
will work best for you? It depends on your level of
debt, your level of discipline, and your prospects for
the future.
Self-Help
Developing a Budget
The first step toward taking control of your financial
situation is to do a realistic assessment of how much
money comes in and how much money you spend. Start by
listing your income from all sources. Then, list your
"fixed" expenses-those that are the same each
month-such as your mortgage payments or your rent, car
payments, or insurance premiums. Next, list the expenses
that vary, such as entertainment, recreation, or clothing.
Writing down all your expenses-even those that seem
insignificant-is a helpful way to track your spending
patterns, identify the expenses that are necessary,
and prioritize the rest. The goal is to make sure you
can make ends meet on the basics: housing, food, health
care, insurance, and education.
Your public library has information
about budgeting and money management techniques. Low
cost budget counseling services that can help you analyze
your income and expenses and develop a budget and spending
plan also are available in most communities. Check your
Yellow Pages or contact your local bank or consumer
protection office for information about them. In addition,
many universities, military bases, credit unions, and
housing authorities operate nonprofit financial counseling
programs.
Contacting
Your Creditors
Contact your creditors immediately if you are having
trouble making ends meet. Tell them why it's difficult
for you, and try to work out a modified payment plan
that reduces your payments to a more manageable level.
Don't wait until your accounts have been turned over
to a debt collector. At that point, the creditors have
given up on you.
Dealing
with Debt Collectors
The Fair Debt Collection Practices Act is the federal
law that dictates how and when a debt collector may
contact you. A debt collector may not call you before
8 a.m., after 9 p.m., or at work if the collector knows
that your employer doesn't approve of the calls. Collectors
may not harass you, make false statements, or use unfair
practices when they try to collect a debt. Debt collectors
must honor a written request from you to stop further
contact.
Credit Counseling
If you aren't disciplined enough to create a workable
budget and stick to it, can't work out a repayment plan
with your creditors, or can't keep track of mounting
bills, consider contacting a credit counseling service.
Your creditors may be willing to accept reduced payments
if you enter into a debt repayment plan with a reputable
organization. In these plans, you deposit money each
month with the credit counseling service. Your deposits
are used to pay your creditors according to a payment
schedule developed by the counselor. As part of the
repayment plan, you may have to agree not to apply for-or
use-any additional credit while you're participating
in the program.
A successful repayment plan requires
you to make regular, timely payments, and could take
48 months or longer to complete. Ask the credit counseling
service for an estimate of the time it will take you
to complete the plan. Some credit counseling services
charge little or nothing for managing the plan; others
charge a monthly fee that could add up to a significant
charge over time. Some credit counseling services are
funded, in part, by contributions from creditors.
While a debt repayment plan can eliminate
much of the stress that comes from dealing with creditors
and overdue bills, it does not mean you can forget about
your debts. You still are responsible for paying any
creditors whose debts are not included in the plan.
You are responsible for reviewing monthly statements
from your creditors to make sure your payments have
been received. If your repayment plan depends on your
creditors agreeing to lower or eliminate interest and
finance charges, or waive late fees, you are responsible
for making sure these concessions are reflected on your
statements.
A debt repayment plan does not erase
your negative credit history. Accurate information about
your accounts can stay on your credit report for up
to seven years. In addition, your creditors will continue
to report information about accounts that are handled
through a debt repayment plan. For example, creditors
may report that an account is in financial counseling,
that payments have been late or missed altogether, or
that there are write-offs or other concessions. A demonstrated
pattern of timely payments, however, will help you get
credit in the future.
Auto and
Home Loans
Debt repayment plans usually cover unsecured debt. Your
auto and home loan, which are considered secured debt,
may not be included. You must continue to make payments
to these creditors directly.
Most automobile financing agreements
allow a creditor to repossess your car any time you're
in default. No notice is required. If your car is repossessed,
you may have to pay the full balance due on the loan,
as well as towing and storage costs, to get it back.
If you can't do this, the creditor may sell the car.
If you see default approaching, you may be better off
selling the car yourself and paying off the debt: You
would avoid the added costs of repossession and a negative
entry on your credit report.
If you fall behind on your mortgage,
contact your lender immediately to avoid foreclosure.
Most lenders are willing to work with you if they believe
you're acting in good faith and the situation is temporary.
Some lenders may reduce or suspend your payments for
a short time. When you resume regular payments, though,
you may have to pay an additional amount toward the
past due total. Other lenders may agree to change the
terms of the mortgage by extending the repayment period
to reduce the monthly debt. Ask whether additional fees
would be assessed for these changes, and calculate how
much they total in the long run.
If you and your lender cannot work
out a plan, contact a housing counseling agency. Some
agencies limit their counseling service to homeowners
with FHA mortgages, but many offer free help to any
homeowner who's having trouble making mortgage payments.
Call the local office of the Department of Housing and
Urban Development (HUD) or the housing authority in
your state, city, or county for help in finding a housing
counseling agency near you.
Debt Consolidation
You may be able to lower your cost of credit by consolidating
your debt through a second mortgage or a home equity
line of credit. Think carefully before taking this on.
These loans require your home as collateral. If you
can't make the payments-or if the payments are late-you
could lose your home.
The costs of these consolidation loans
can add up. In addition to interest on the loan, you
pay "points." Typically, one point is equal
to one percent of the amount you borrow. Still, these
loans may provide certain tax advantages that are not
available with other kinds of credit.
Bankruptcy
Personal bankruptcy generally is considered the debt
management tool of last resort because the results are
long-lasting and far-reaching. A bankruptcy stays on
your credit report for 10 years, making it difficult
to acquire credit, buy a home, get life insurance, or
sometimes get a job. However, it is a legal procedure
that offers a fresh start for people who can't satisfy
their debts. Individuals who follow the bankruptcy rules
receive a discharge-a court order that says they do
not have to repay certain debts.
There are two primary types of personal
bankruptcy: Chapter 13 and Chapter 7. Each must be filed
in federal bankruptcy court. The current fees for seeking
bankruptcy relief are $160: a filing fee of $130 and
an administrative fee of $30. Attorney fees are additional
and can vary widely. The consequences of bankruptcy
are significant and require careful consideration.
Chapter 13 allows you, if you have
a regular income and limited debt, to keep property,
such as a mortgaged house or car, that you otherwise
might lose. In Chapter 13, the court approves a repayment
plan that allows you to pay off a default during a period
of three to five years, rather than surrender any property.
Chapter 7, known as straight bankruptcy,
involves liquidating all assets that are not exempt.
Exempt property may include cars, work-related tools
and basic household furnishings. Some property may be
sold by a court-appointed official-a trustee-or turned
over to creditors. You can receive a discharge of your
debts under Chapter 7 only once every six years.
Both types of bankruptcy may get rid
of unsecured debts and stop foreclosures, repossessions,
garnishments, utility shut-offs, and debt collection
activities. Both also provide exemptions that allow
you to keep certain assets, although exemption amounts
vary. Personal bankruptcy usually does not erase child
support, alimony, fines, taxes, and some student loan
obligations. Also, unless you have an acceptable plan
to catch up on your debt under Chapter 13, bankruptcy
usually does not allow you to keep property when your
creditor has an unpaid mortgage or lien on it.
Avoiding
Scams
Turning to a business that offers
help in solving debt problems may seem like a reasonable
solution when your bills become unmanageable. Be cautious.
Before you do business with any company, check it out
with your local consumer protection agency or the Better
Business Bureau in the company's location.
Ads Promising Debt Relief May Be
Offering Bankruptcy
Consumer debt is at an all-time high.
What's more, a record number of consumers-nearly 1.5
million in 2001-are filing for bankruptcy. Whether your
debt dilemma is the result of an illness, unemployment,
or overspending, it can seem overwhelming. In your effort
to get solvent, be on the alert for advertisements that
offer seemingly quick fixes. While the ads pitch the
promise of debt relief, they rarely say relief may be
spelled b-a-n-k-r-u-p-t-c-y. And although bankruptcy
is one option to deal with financial problems, it's
generally considered the option of last resort. The
reason: it has a long-term negative impact on your creditworthiness.
A bankruptcy stays on your credit report for 10 years,
and can hinder your ability to get credit, a job, insurance,
or even a place to live.
The Federal Trade Commission (FTC)
cautions consumers to read between the lines when faced
with ads in newspapers, magazines, or even telephone
directories that say:
"Consolidate
your bills into one monthly
payment without borrowing"
"STOP
credit harassment, foreclosures,
repossessions, tax levies and garnishments"
"Keep
Your Property"
"Wipe
out your debts! Consolidate your bills! How?
By using the protection and assistance provided
by federal law. For once, let the law work for
you!" |
You'll find out later that such phrases
often involve bankruptcy proceedings, which can hurt
your credit and cost you attorneys' fees.
Advance-Fee
Loan Scams
These scams often target consumers with credit problems
or consumers who have difficulty getting credit. In
exchange for an up-front fee, these companies guarantee
that applicants will get the credit they want-usually
a credit card or a personal loan.
The up-front fee may range from $100
to several hundred dollars. Resist the temptation to
follow up on advance-fee loan guarantees. They may be
illegal. Many legitimate creditors offer extensions
of credit, such as credit cards, loans, and mortgages,
through telemarketing and require an application fee
or appraisal fee in advance. But legitimate creditors
never guarantee in advance that you'll get the loan.
Under the federal Telemarketing Sales Rule, a seller
or telemarketer who guarantees or represents a high
likelihood of your getting a loan or some other extension
of credit may not ask for or receive payment until you've
received the loan.
Recognizing
an Advance-Fee Loan Scam
There are many fraudulent loan brokers and other individuals
misrepresenting the availability of credit and credit
terms. One of their favorite strategies is the "advance-fee"
loan scam. That's where they claim to guarantee that
they can get a loan or other type of credit for you-but
you must pay a fee before you apply.
Ads for advance-fee loans often appear
in the classified ad section of local and national newspapers
and magazines. They also may appear in mailings, radio
spots, and on local cable stations. Often, these ads
feature "900" numbers, which result in charges
on your phone bill. In addition, these companies often
use delivery systems other than the U.S. Postal Service,
such as overnight or courier services, to avoid detection
and prosecution by postal authorities.
Don't confuse a legitimate credit
offer with an advance-fee loan scam. An offer for credit
from a bank, savings and loan, or mortgage broker generally
requires your verbal or written acceptance of the loan
or credit offer. The offer usually is subject to a check
of your credit report after you apply to make sure you
meet their credit standards. You are usually not required
to pay a fee in order to get the credit.
Be suspicious of anyone who calls
you on the phone and says they can guarantee you will
get a loan if you pay in advance. Hang up. It's against
the law.
Protecting
Yourself
Here are some points to keep in mind before you respond
to ads that promise easy credit, regardless of your
credit history:
Most legitimate lenders will not "guarantee"
that you will get a loan or a credit card before you
apply, especially if you have bad credit, or a bankruptcy.
It is an accepted and common practice
for reputable lenders to require payment for a credit
report or appraisal. You also may have to pay a processing
or application fee.
Never give your credit card account
number, bank account information, or Social Security
number out over the telephone unless you are familiar
with the company and know why the information is necessary.
Credit Repair
Scams
You see the ads in newspapers, on TV, and on the Internet.
You hear them on the radio. You get fliers in the mail.
You may even get calls from telemarketers offering credit
repair services. They all make the same claims:
"Credit
problems? No problem!"
"We
can erase your bad credit-100% guaranteed."
"Create
a new credit identity-legally."
"We
can remove bankruptcies, judgments, liens, and
bad loans from your credit file forever!" |
Do yourself a favor and save some
money too. Don't believe these statements. Only time,
a conscientious effort, and a plan for repaying your
debt will improve your credit report.
The Scam
Every day, companies nationwide appeal to consumers
with poor credit histories. They promise, for a fee,
to clean up your credit report so you can get a car
loan, a home mortgage, insurance, or even a job. The
truth is, they can't deliver. After you pay them hundreds
or thousands of dollars in up-front fees, these companies
do nothing to improve your credit report; many simply
vanish with your money.
The Warning
Signs
If you decide to respond to a credit repair offer, beware
of companies that:
- want you to pay for credit repair services before
any services are provided;
- do not tell you your legal rights and what you can
do-yourself-for free;
- recommend that you not contact a credit bureau directly;
- suggest that you try to invent a "new"
credit report by applying for an Employer Identification
Number to use instead of your Social Security number;
or
- advise you to dispute all information in your credit
report or take any action that seems illegal, such
as creating a new credit identity. If you follow illegal
advice and commit fraud, you may be subject to prosecution.
You could be charged and prosecuted
for mail or wire fraud if you use the mail or telephone
to apply for credit and provide false information. It's
a federal crime to make false statements on a loan or
credit application, to misrepresent your Social Security
number, and to obtain an Employer Identification Number
from the Internal Revenue Service under false pretenses.
The Credit
Repair Organizations Act
By law, credit repair organizations must give you a
copy of the "Consumer Credit File Rights Under
State and Federal Law" before you sign a contract.
They also must give you a written contract that spells
out your rights and obligations. Read these documents
before signing the contract. The law contains specific
consumer protections. For example, a credit repair company
cannot:
- make false claims about their services;
- charge you until they have completed the promised
services; or
- perform any services until they have your signature
on a written contract and have completed a three-day
waiting period. During this time, you can cancel the
contract without paying any fees.
Your contract must specify:
- the payment for services, including their total
cost;
- a detailed description of the services to be performed;
- how long it will take to achieve the results;
- any guarantees they offer; and
- the company's name and business address.
If
You Are A Victim - Where to Complain
If you've had a problem with any of
the scams described here, contact your local consumer
protection agency, state Attorney General (AG), or Better
Business Bureau. Many AGs have toll-free consumer hotlines.
Check with your local directory assistance.
For More Information
The Federal Trade Commission enforces
a number of credit laws and provides consumers with
free information about them:
- The Equal
Credit Opportunity Act prohibits the denial of
credit because of your sex, race, marital status,
religion, national origin, age, or because you receive
public assistance.
- The
Fair Credit Reporting Act gives you the right
to learn what information is being distributed about
you by credit reporting agencies.
- The Truth in Lending Act requires lenders to give
you written disclosures of the cost of credit and
terms of repayment before you enter into a credit
transaction.
- The Fair
Credit Billing Act establishes procedures for
resolving billing errors on your credit card accounts.
- The Fair
Debt Collection Practices Act prohibits debt collectors
from using unfair or deceptive practices to collect
overdue bills that your creditor has forwarded for
collection.
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