Credit, Credit Reporting & Credit Repair

Some basics you should understand about credit, its importance
to you, your rights regarding it, how credit is reported
and how it can be repaired and rebuilt.

Questions and answers about credit

1.   Why is my credit standing important?

It used to be that bad credit merely affected your ability to borrow money. But that’s changed. Today, your credit standing has become a basic ingredient of how people assess your character. Many employers now require a credit report as part of considering an applicant for a position. Your credit standing is now a factor considered by people thinking about doing business with you. Your credit standing is, to a degree, who you are and can have a great deal of influence on how your life plays out.

2.   Is our credit system fair?

Absolutely not! It’s an unfair system because when you’re accused of committing a credit offense, “you are guilty until proven innocent”. I say this because a bad credit notation can be added to your credit file and used to reduce your credit score without you being informed or being given the opportunity to challenge it. Thus, you can be legally caused harm without due process which is quite contrary to our nation’s system of justice.

3.   How is my credit affected by my difficulties with debt?

If you have problems with debt you probably already have problems with your credit. In addition, you can expect that your credit will suffer additional damage when you start taking steps to manage your debts. However, you can minimize credit damage and thereby decrease the time and effort it will take to repair and rebuild it. Your first priority should be reducing your debts with care to minimize further credit damage. Once your debts are under control then you should direct your efforts toward repairing and rebuilding your credit.

4.   What is Credit Reporting and how does it work?

Credit reporting is the system by which credit information about you is:

• Obtained by Credit Reporting Agencies (Credit Bureaus)
   

• Classified and summarized by them into a format as a credit report or a credit score
   

• Provided on request to anyone legally authorized to receive such information.

5.   How am I protected from abusive credit reporting?

A federal law was enacted several years ago entitled the Fair Credit Reporting Act (referred to as the FCRA). Its stated purpose is to stop the abuse and inaccuracies associated with credit reporting.

6.   Who and what does this law regulate?

This FCRA regulates any person or organization that provides, receives, or uses consumer credit information. In addition, it regulates the manner in which such information is gathered, distributed and used.

7.   Who can get a copy of my credit report?

Any person or entity can obtain a copy of your credit report without your consent from a Credit Reporting Agency if the purpose of having that report is to: extend or continue credit, aid in the collection of a debt, evaluate you for business or insurance purposes, consider your eligibility for certain licenses and to evaluate your capacity to make child support payments. Employers must now have your consent to pull your credit report to evaluate you for a job or a promotion. Any government agency can obtain your credit report on request but only for location and personal information.

8.   How do I get a copy of my credit report?

You can obtain your credit report from any Credit Reporting Agency by written request for a fee not to exceed $8.00 and on request at no charge within 60 days of being denied credit by any one using that report. Some states require credit reporting agencies to provide one free report per year on request.

9.   What are some of the rules companies reporting credit information to credit bureaus must follow?

• They must provide correct dates of delinquencies
   

• They can not furnish information known to be inaccurate
   

• They must use reasonable procedures to prevent furnishing inaccurate data
   

• They must promptly advise credit bureaus of any corrections or additions
   

• They must investigate all consumer disputes reported by credit bureaus and report their findings back to the credit bureau within 30 days

10. What information is permitted to be on my credit report?

• Identification and location information - name, address, telephone number and your social security number
   

• Personal history – your age, marital status, number of dependents, military service, previous addresses and prior employment
   

• Employment information – your present employer, your position, length of service and your salary
   

• Public record information - facts that usually originate through some form of legal filing including judgments, bankruptcies, arrests, convictions, property and tax liens, marriage, divorce, wage garnishments and security agreements
   

• Credit history - payment histories of current and paid off loans, charge and credit card accounts, information about accounts sent to collection, accounts charged off and balances of present loans and charge accounts
   

• Investigative information – information about your reputation, character, and lifestyle, which is gathered through personal interviews with your friends, neighbors and business associates

11. What is my Credit Score and how is it used?

Your credit score is a number that is calculated and assigned to you for use in evaluating applications for mortgages and most other type of consumer financing. It took the place of using credit reports for this purpose because lenders believe it’s easier to work with and allows for applicants to be evaluated on a more or less equal basis.

12. How are credit scores calculated?

Credit scores (also called FICO Scores) are calculated using a secret computer program reportedly known only to the Fair Isaac Company (who developed it). It is said to evaluate credit worthiness using mostly credit information but may also take into consideration the following:

• Time at your present job (the longer the better)
   

• Amount of credit available (the lesser the better)
   

• Ratio of credit used to credit available (the lower the better)
   

• Time at your present address (the longer the better)
   

• Your occupation (professionals and higher-end jobs get higher scores)
   

• Whether or not you are a homeowner (yes is better)
   

• Number of recent credit inquiries (the fewer the better)
   

• Your age (over 50 is best)
   

• Years you have had credit (the more the better)

This is all fed into the program, which gives each item a numeric value. The total of all the values is your credit score and how it stacks up to established standards determines whether or not you get a mortgage and if you do, what interest rate you will have to pay. Credit history is the key ingredient and the other factors are listed above in order of their importance according to a consensus of close observers (don’t forget the actual formula is secret). Scores range from 325 (or 350) to 800 (or 900) - over 650 is generally considered good.

13. How do I correct errors or inaccuracies on my credit report?

• Inform the credit bureau in writing of any item listed that is inaccurate, incomplete or obsolete providing all relevant facts and back-up documents if applicable.
   

• The credit bureau must investigate to confirm accuracy within 30 days.
   

• If the item is found to be inaccurate or it is not verified within the 30 days they must correct it or delete it as appropriate.
   

• The credit bureau must advise you in writing of the results of their investigation within 5 business days of completion and provide a copy of a new report if there are changes.
   

• If no changes are made the credit bureau must advise you of your right to add a 100 word mitigating statement to the report regarding the item you are disputing.

14. What about the reports previously sent out with erroneous information?

If changes are made to your report the credit bureau must provide written notice of such changes to any third party who was sent your report during the previous six months or the previous two years if the report was sent for the purposes of employment.

15. What does it mean when credit information is obsolete?

The FCRA sets limits on the time that derogatory credit information can appear on your credit report. This means that once this time limit is reached the item must be removed from your report as follows:

• Bankruptcies: - 10 years from date of discharge
   

• Lawsuits – 7 years from date filed
   

• Judgments – 7 years from date entered or state’s statute of limitations, if longer
   

• Tax Liens – 7 years from date filed
   

• Collection and charged off accounts – 7 years from date the delinquency began
   

• Arrests and convictions – 7 years

16. If my rights under the FCRA are violated, how do I get justice?

As with the Fair Debt Collection Practices Act (FDCPA), you must retain an attorney and sue the person or entity that violated your rights. If your suit is successful, the court can award statutory damages of up to $1,000.00 plus any actual damages caused by the violation and punitive damages if the court deems the violation to be willful.

Criminal penalties may also be assessed against anyone who willfully obtains a credit report under false pretenses and against anyone who willfully provides credit information to a person not authorized to receive it. Penalties range from a fine to imprisonment of up to two years.

17. Who are the major Credit Reporting Agencies and how do I contact them?

Major Credit Reporting Agencies

Equifax Information Service Center

PO Box 740241

Atlanta, GA  30374-0241

1-(800) 685-1111  --  www.equifax.com

Experian National Consumer Assistance Center

PO Box 949

Allen, TX  75013-0949

1-(888) EXPERIAN  --  www.experian.com

Trans Union Consumer Disclosure Center

PO Box 2000

Chester, PA  190022

1-(800) 916-8800  --  www.transunion.com 

18. Can bad credit be repaired?

In some cases it can and in others it can not. Be careful, though there are legal methods to repair some bad credit items, there are scores of scam-artists who make bogus claims regarding their ability to repair credit that they can’t and even some who use illegal methods. Listed below are the methods that can be used to legally repair credit. Don’t be conned into paying anyone who claims they can do it any other way.

Your credit can be repaired by:

• Eliminating errors by reviewing your credit report to make sure all information reported is accurate then going through the procedures provided by the FCRA to have any errors found corrected.
   

• Reducing or closing unnecessary credit lines
   

• Requesting verification from each credit reporting agency of any derogatory item on your credit report that you are skeptical about.

• Agreements with creditors who can normally withdraw any derogatory item reported and have it removed from your credit report provided that it is not public record information.
   

• Using mitigating statements to explain, challenge or tone down a derogatory item on your credit report that you dispute but that you are unable to have removed. You are entitled to add a statement of up to 100 words to do this.
   

• The passing of time (FCRA Obsolescence) because sooner or later all derogatory items on your credit report will be removed by the obsolescence provisions of the FCRA (see Question 15 above for details).

• Finally, you always have the right to challenge a credit bureau in court by filing a law suit claiming inaccuracies on your credit report that the credit bureau will not change.

Anyone wishing to repair a bad credit report must understand that there is no quick fix. It can be done to the extent that using the steps above can help and that’s it. Stay away from anyone trying to sell you a service indicating it can be done using other methods.

19. Can bad credit be rebuilt and if so how long will it take?

Yes it can. At the same time you take steps to repair your credit by removing derogatory items from your credit report you can also be rebuilding it by adding good notations. The second biggest misconception about credit is that it gets better if you don’t use it (you have no credit outstanding). Again, wrong. You improve your credit standing by having credit and using it responsibly. This means not overusing it and playing by rules and conditions for using it.

There are several steps you can take to rebuild credit:
 

• Use credit you still have responsibility by meeting all terms and conditions including paying what you’re supposed to on time and not going over your credit limit.
   

• If you have any credit cards with open lines, use them occasionally but pay off what you charge at the end of each month and don’t build up any balances.
   

• If your credit is really bad and you have no credit cards and can’t get one, start with a secured credit card which is available at most banks. You get a card (Master Card, Visa, etc.) normally with a $500.00 line for which you must deposit $500.00 to $1,000.00 in a savings account that the bank holds as collateral. If you use the card responsibly for a while (a year or maybe less) the bank will probably release the collateral requirement.

• Auto loans are another way to get credit quickly even if your credit score is poor. They are normally available to just about anyone because of the low risk to the lender with the vehicle acting as natural collateral. However if your credit is bad the interest rate you will have to pay will be high. Thus, this should only be done if you need a vehicle. Because of the high interest rate it makes no sense to do it simply to improve credit.

Rebuilding bad credit is normally a slow process. How long it takes will depend on how bad your credit is and how astutely you go about taking the steps outlined above to repair and rebuild it.

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