| CREDIT RECORDS
How to Establish a Credit Record
Q. How can I get credit if I never previously had it?
A. First-time borrowers soon realize that in order to get credit
they must have a credit history.
There are several ways to start building a good, solid credit history.
For example, you may:
• open a checking or savings account; when credit grantors see such
accounts they can judge
whether you have adequate money and know how to manage it;
• apply for limited credit from a large, local department store,
and use it; (If you want to build
a credit history, remember that some small local retailers, travel-and-entertainment
cards,
credit unions, and gasoline card companies do not report your credit performance
to a credit
bureau.);
• obtain a secured credit card (discussed earlier in this chapter);
or, deposit money
in a bank, savings and loan association, or savings bank and then borrow
against it;
• have someone cosign the loan with you; that person must have a
favorable credit record and
will be liable for the debt if you cannot pay. With your first loan based
on someone else's
credit, it will be easier to get credit on your own after you pay back
the loan. If you are asked
to cosign for another person's loan, be very careful; if that person fails
to pay, the debt will be
your responsibility.
Q. Should I get credit in my own name, even though I am married?
A. Yes, if you have your own sources of income, you should establish
a credit history in your
own name in case you become divorced or your spouse dies. This is also
especially important if
your spouse has a poor credit record and you do not want your credit records
tarnished with his or her payment performance. However, many divorced
or widowed persons do not have credit histories separate from their former
spouses. In these cases, credit grantors must look at the credit history
of any accounts held jointly with the former spouses. The non-earning
spouse may be able to obtain credit by showing with checks, receipts,
or other records that he or she is worthy of credit. If their former spouses
had poor credit records, non-earning spouses may show that the records
do not reflect whether they deserve credit by producing previous explanatory
letters sent to credit grantors, copies of contracts signed only by the
spouse, receipts, or other evidence.
Q. What is a credit bureau?
A. Credit bureaus (sometimes called credit reporting agencies
or consumer reporting agencies)
maintain computer files of your financial payment histories, public record
data, and personal
identifying data. Your credit record does not contain information on your
medical history. There
are several competing major credit reporting systems: Experian, Equifax,
Credit Information
Services, and Trans Union Credit Information Company. You can find the
bureaus serving your
area by looking for credit reporting companies in the yellow pages of
your phone book.
Activities of credit bureaus are governed by a federal law: the Fair Credit
Reporting Act
(FCRA).
Credit bureaus do not make credit decisions. Instead, they provide data
to credit grantors
for use in making credit decisions. How does this work? Credit grantors
provide information on
their customers' debts and payment habits to credit bureaus, usually on
a monthly basis. The data are stored on computer and then made available,
sometimes on an "on-line" basis, to other credit grantors to
whom you apply for credit. For this reason, a good credit record is very
important to your ability to obtain credit to purchase goods and services,
to rent an apartment or to buy a home. Credit reports may also be used
when you apply for insurance or for employment. The law punishes unauthorized
persons who lie to obtain a credit report, or credit bureau employees
who supply a credit report to unauthorized persons. These people may receive
fines of up to fivethousand dollars or prison terms for one year, or both,
if they are proven guilty. In addition, they may face civil liability
as well, in the form of money damages a court may impose on them.
Since your credit record is critical to your obtaining credit, it is very
important that you
assist the credit bureaus in assuring that each item in your credit record
really reflects your credit history and not that of another person. Whenever
you apply for credit you should use the same name. Thus, if you are James
R. Jones, Jr., always append the "Jr.," and do not sometimes
use J.
Randall Jones and other times use J. R. Jones. Finally, you will typically
be asked for your social security number on a credit application. If so,
provide it. The request is not to invade in your privacy but to assure
that your credit records do not get mixed in with those of some other
James Jones.
Two useful publications about credit bureaus are:
• The Credit Reporting Dispute Resolution Process
• Credit Reports, Credit Reporting Agencies and the FCRA
These two publications are also available in Spanish and can be obtained
from:
Associated Credit Bureaus
1000 Vermont Ave., NW, Suite 200
Washington, DC 20005-4905
How to Check Your Credit Record
Q. May I look at my credit record?
A. Yes, you have the right to know the content of credit files
that contain information on you,
and many consumer credit experts suggest that you examine these credit
files about once a year.
A periodic checkup will enable you to find out what the credit bureaus
will report to those
businesses with a legitimate reason to check your credit record. Whenever
you ask to learn the
contents of your file, you should be sure to provide adequate identification
to the credit bureau so you will receive your report and not that of someone
with a similar name.
The FCRA allows you to review your file at any time, and it is particularly
important for
you to do so if you plan to apply to rent an apartment or apply for a
job or a home mortgage loan or other major loan or credit purchase. The
credit bureau is permitted to charge you a reasonable fee for providing
this service unless your inquiry is after adverse credit action is taken
against you. Currently, credit bureaus that are members of the industry's
trade association, Associated Credit Bureaus (ACB), charge no more than
$8.50 for an individual report or $17 for a joint report. Some members
offer consumers one free report each year upon request. As noted earlier,
a creditor may turn you down or take other adverse credit action because
of a report from a credit bureau. If so, the law requires that the credit
grantor give you the bureau's name and address.
You are allowed to request information about the data from the credit
bureau by phone, mail, or in person. If a credit grantor has denied you
credit within the past
thirty days because of data supplied by a credit bureau, the bureau may
not charge you for the
information. As a matter of practice ACB members will provide a free report
within sixty days
from the date your credit application was declined. Although federal law
requires only that the
credit reporting agency disclose the "nature and substance"
of the report, most credit bureaus
disclose all of the information in the report, although in a more "consumer
friendly" form than
the computerized report used by credit grantors.
The FCRA requires the credit bureau to tell you the names of the creditors
who provided
the data and the name of everyone who has received a report on you in
the last six months (or
within the past two years for employment reports). The credit bureau also
must help you interpret the data.
Understanding Your Credit Report
Contrary to popular belief, a credit bureau neither tracks all aspects
of your personal life nor
explicitly evaluates credit applications, though the "risk
score" summary that credit grantors can ask for does suggest
the probability of bankruptcy or serious delinquency in the future.
Credit bureaus are simply organizations that collect and transmit
four principal types of information:
identification and employment data; payment histories; credit-related
inquiries; and public record information.
A good credit report is vital to your access to credit. Therefore,
it is important for you to
understand and find out what your credit report contains, how to
improve your credit report and how to deal with credit problems. |
Q. What does a credit report look like?
A. The basic format used by members of the ACB contains these
major types of information:
• Identification and employment data: Your name, birthdate, addresses
(present and former),
employment history, home ownership, income, and similar data for your
spouse, since this is
a joint report.
• Payment history: Your account record with different credit grantors,
showing how much
credit has been extended and how you have repaid it. The first column
labeled "Whose"
shows whether the debt listed is joint (2), while the "1" indicates
that the person named has
sole responsibility for the debt. Some accounts, such as a department
store credit card, may
be labeled "3", since one person is responsible for payment,
but both spouses may use it.
• Inquiries: Credit bureaus maintain a record of all credit grantors
who have checked your
credit record within the past six months. Credit bureaus typically do
not include credit
prescreening inquiries in credit reports, but will provide them to consumers
as a part of
disclosure. Prescreening occurs when, for example, issuers of credit cards
develop mailing
lists to make pre-approved offers of their credit cards.
• Public record information: Events that are a matter of public
information related to your
creditworthiness, such as bankruptcies, foreclosures, or tax liens, will
appear in your credit
report. An example would be record of a dispute between the consumer and
an appliance
dealer that was settled in a small claims court.
Q. What does the law allow me to do if the credit bureau will
not cooperate?
A. Under the Fair Credit Reporting Act, you may bring a lawsuit
against any credit bureau or
credit grantor who violates any provisions of the Act. This includes any
credit reporting agency
that fails to observe the restrictions about who may access your credit
file and any credit bureau that does not properly reinvestigate and correct
inaccurate data in your file that you have disputed. However, if the agency
has followed reasonable procedures, it has obeyed the law. If you win
the lawsuit, you deserve to receive actual damages (which might be lost
wages for a job you did not get), as well as punitive damages if you prove
the violation was intentional. If you are successful, you also will receive
court costs and a reasonable amount for attorneys' fees.
How to Maintain a Good Credit Record
Q What may I do if I believe the credit bureau has incorrect information
in my file?
A. If you find that information in the credit report is inaccurate,
incomplete, or outdated,
you may challenge its accuracy or completeness by notifying the credit
bureau. These
credit reporting agencies may be contacted as shown below:
Equifax 1-800-685-1111, or www.equifax.com
Experian 1-888-397-3742, or www.experian.com
Trans Union 1-800-916-8800, or www.tuc.com
Unless it believes that your request is "frivolous or irrelevant,"
the credit bureau must
either verify the facts within a reasonable period of time or delete the
information from its files.
The "frivolous-or-irrelevant" provision is there in part to
deal with some credit repair clinics (see
below), who challenge all negative information, whether there is a basis
for the challenge or not.
As a matter of practice, ACB bureaus reinvestigate the complaint within
thirty days. If your
complaint is justified, the credit bureau will automatically notify the
other bureaus of the change
and, if you request it, notify any creditor that has checked your file
in the past six months (two
years for employment reports).
If reinvestigation of disputed information by a credit bureau does not
resolve the matter,
you may file your version of the story in a statement of up to one hundred
words. The credit
bureau must include your statement, or a clear and accurate summary of
it, in all future credit
reports containing the disputed item. You also may ask the credit bureau
to mail copies of your
statement to anyone who received a report containing the disputed item
during the last six
months. This time period is two years for employment reports.
Q. How does the passage of time affect my credit report?
A. Under the FCRA most negative information (such as late payments,
accounts charged off)
may be maintained on your credit record for only seven years, unless the
information is used
when you apply for fifty thousand dollars or more in credit, for a life
insurance policy with a face amount of fifty thousand dollars or more,
or for a job paying at least twenty thousand dollars a year. Records of
bankruptcies may be reported for ten years. The fact that negative information
remains on your credit report for such a long time emphasizes the importance
of maintaining a good credit record.
Q. What is the story behind companies that advertise their abilities
to repair faulty credit histories? They sound too good to be true.
A. These "credit repair clinics" can help you review
and update your credit record and report.
However, their fees could be as high as one thousand dollars, whereas
you can deal directly with a credit bureau on your own. If your credit
report has an error, you may correct it yourself for free or at very little
cost. If the information in your credit report is accurate, only better
management of your debts can offset the negative record and only the passage
of time can
remove it. Be very suspicious and careful if a credit repair clinic promises
that it can remove
accurate records of bankruptcy and bad debts from your credit record or
if it promises to get you credit. In general, if a credit program sounds
too good to be true, it probably is.
Sidebar: Creditors Make Mistakes Too
After you have established credit, the best way to remain in good standing
is to repay your debts on time. However, what happens if the credit grantor
makes an error on your bill? What if you are billed for an item that you
did not buy or for a product that you returned as defective? If you just
don't pay the bill, the creditor will hurt your credit record by reporting
it as delinquent to the credit bureaus.
This section discusses what to do to correct creditors' mistakes
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