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Building a Better Credit
Record
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.
It happens to the nicest people. A lost job, a late credit card
payment, a huge medical bill. Dings in your credit history could be
keeping you from getting a low interest personal loan, a new car or causing
higher than normal insurance payments. So what do you do when
your credit history is less than perfect? You have probably seen an
advertisement similar to this one:
|
"Credit Problems? NO problem ..." "We can remove bankruptcies,
judgments, liens, "Create a new credit identity—legally." |
Newspapers, radio, TV and the Internet are filled with advertisements that offer (for a fee, of course) to erase accurate negative information in your credit file. Do yourself a favor and save some money. Don’t believe these statements. These ads offer to erase accurate negative information in your credit file so you can get a credit card, auto loan, home mortgage, or even a job. The scam artists who run these ads can’t deliver. Only time, a deliberate effort, and a personal debt repayment plan will improve your credit.
The companies that advertise credit repair services appeal to consumers with
poor credit histories. Not only can’t they provide you with a clean credit
record, they may be encouraging you to violate federal law. If they ask you
to make false statements on a loan or credit application, misrepresent your
Social Security number, or advise you to get an Employer Identification
Number from the Internal Revenue Service under false pretenses, you will be
committing fraud.
The truth is you can help yourself to re-build a better credit
record. Start by contacting your creditors when you realize that you are
unable to make payments. If you need help working out a payment plan and a
budget, contact your local credit counseling service. There are non-profit
groups in every state that offer credit guidance to consumers. These
services are available at little or no cost. Also, check with your employer,
credit union, or housing authority for no-cost credit counseling programs.
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Credit Report Questions and Answers Q. How do I find the CRA that
has my report?
Q. Do I have a right to know
what's in my report? Q. Is there a charge for my
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? 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. Other facts you should know:
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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. Here is a sample letter:
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Date
Complaint Department 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,
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 "STOP credit
harassment, foreclosures, "Keep Your Property" "Wipe out your
debts! Consolidate your bills! How? |
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. 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.
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.
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