Understanding your credit reports and scores

Credit report with score
A 2013 study by the Federal Trade Commission found that millions of Americans have serious errors on their credit reports. These errors can severely inhibit a consumer’s ability to get an affordable loan, rent an apartment, or even find a job.

The credit bureaus act as judge and jury by irresponsibly handling consumer information and hastily responding to consumer disputes when errors are found in credit reports. Credit bureaus make it almost impossible for consumers to fix credit report mistakes.

Even though the FCRA sets out guidelines on how credit bureaus should conduct investigations, unless a consumer is well-versed in the FCRA rules and force the credit bureaus to do their job correctly, most credit disputes are frivolously handled.

What you can do to protect your credit is to begin understanding your credit reports and carefully examine all information contained in your credit reports.

Get to know your credit reports

Whether or not consumers agree, their credit report reflects financial responsibility.  Having mistakes in a credit report can result in the denial of basic necessities such as housing and employment.

The major credit bureaus, Experian, Transunion and Equifax compile massive amounts of data about consumers on a daily basis. The information contained in the files should be completely accurate as credit files are regularly sold to banks, lenders, employers, insurance companies, landlords and even employers.

How Negative Credit Affects Your Finances

Democratic-NY Rep. Carolyn Maloney said “Being denied credit based on erroneous information impairs your future chances of getting credit and makes it harder to overcome the error…mistakes mushroom into very serious problems.”

It has become imperative that you rid your credit files of any errors, inaccurate and out-dated information that is viewed as negative. Learn how to effectively dispute inaccurate information. Unfortunately there is no getting around your credit history; even paying cash does not relieve you from the need for credit. Actions like renting a car or reserving a hotel room require the use of credit even if you plan to pay with cash.

The credit bureaus do not always respond to disputes according to the rules of Fair Credit Reporting Act. This is not unusual and you may have to dispute errors several times before disputes are favorably resolved. It is important to continue the dispute process to the end, no matter how many months it takes.

Three Major Credit Bureaus

The three major credit bureaus are Experian, Equifax and Transunion. Each of the credit bureaus collect, store and maintain data about you and that data can differ from credit bureau to credit bureau. But there are additional consumer reporting agencies that may collect and store data about you. Examples of additional consumer reporting agencies can be Chexsystems, Early Warning Services, Telecheck, Choicepoint; and, unfortunately, many more.

Types of Information Contained in a Credit Report

The types of information included in your credit reports may include the following:

  • Payment History
  • Account Balance
  • Credit Limit
  • Inquiries
  • Collections
  • Employment History
  • Address and Telephone Number
  • Any information supplied by you when you complete an application for credit
  • Public Information (bankruptcy, court judgments, past due child support, liens and foreclosures)

Who Has Access to Your Credit History?

Anyone with a legitimate business purpose can get your credit report such as:

  • Landlords
  • Employers and potential employers
  • Auto, Home & Life Insurance Companies
  • Cable & Satellite Companies
  • Utility Companies (Telephone, Electric & Gas)
  • Cell Phone Providers
  • Companies that you have a credit account with can regularly monitor your credit
  • Government agencies considering you for licensing
  • State and Local Child Support Enforcement Agencies
  • Any Government Agency

With so many entities potentially looking at your credit it is imperative that you know exactly what they are viewing. Know where you stand and get your Equifax, Transunion or Experian credit profile. You are also entitled to your consumer reports from specialty consumer reporting agencies.

The FACT Act

In accordance with the federal FACT Act, consumers are entitled to a free copy of their credit report every 12 months from each of the three major credit bureaus, Experian, Equifax and TransUnion along with any consumer reporting agency. The free credit report does not include your credit score. The credit bureaus charge a separate fee for your credit scores.

You can access your free credit reports online at annualcreditreport. You do not have to order all three credit reports at one time. You can choose to stagger your free reports over the course of a year by ordering one report every four months.

The FACT Act is not the only way to get a free credit report. You are entitled to a free credit report if you have experienced one of the following:

  • Denied credit in the last 60 days
  • Unemployed and intend to apply for employment in the next 60 days
  • You are on public welfare assistance
  • If you believe your file contains inaccurate information due to fraud or identity theft
  • Denied employment based upon information contained in your credit report
  • If your report has been updated or revised based upon an investigation you requested

Marketing and Pre-Approved Offers

The credit bureaus engage in the practice of selling lists for use in “pre-approved” credit and insurance offers. Consumers who receive pre-approved credit offers are often on these marketing lists. However, pre-approved does not necessarily mean a credit report will not be pulled. If you respond, the creditor may access your credit report before you are actually granted credit. Your application can also be denied at that time.

You have a choice to remove you name from any marketing list compiled by a credit reporting agency. To remove your name from all three credit reporting agencies’ marketing lists you can “opt-out”. Call (888) 5-OPTOUT or (888) 567-8688 to opt out or go online to optoutprescreen. Do not allow the credit bureaus to profit from your personal financial information.

Consumer Financial Protection Bureau

In 2013, the Consumer Financial Protection Bureau included credit bureaus in their nonbank supervision program. This is the first time credit bureaus are subject to federal supervision and scrutiny as participants in the financial marketplace. The credit bureaus have a key role in the consumer financial services marketplace and in consumers’ financial lives. The three largest consumer reporting agencies alone maintain information on 200 million American consumers.

“Credit reports play a critical role in the lives of consumers,” said CFPB Director Richard Cordray. “Given the importance of these reports, consumers need to know that their documents are being reviewed when they dispute what they believe is a mistake on a report…”

Consumers may file a dispute with a consumer reporting company about an item on their credit report. If they do, the consumer reporting company ordinarily must inform the furnisher that the consumer has filed a dispute. The consumer reporting company is also required to forward all relevant information it has about the dispute to the furnisher. Once the furnisher receives the information, it must review it, conduct an investigation, and respond to the consumer reporting company.

Due to the electronic dispute system, known as “e-OSCAR,” the dispute process did not provide a means for credit reporting companies to forward to furnishers any documents submitted by consumers.

Under the supervision of the CFPB the “e-OSCAR” system has been upgraded so that the three major credit bureaus can now send furnishers any relevant dispute documents mailed in by consumers.

According to the CFPB each furnisher must fulfill its legal obligations by:

  • Receiving information and investigating disputes: When a consumer files a dispute about a credit report item, companies need to be able to receive information about the dispute and must investigate the consumer’s concerns.
  • Providing investigation results: Furnishers must report the results of the investigation to the consumer reporting company that sent the dispute originally.
  • Correcting inaccurate information: Furnishers are required to report the results of the investigation to nationwide consumer reporting companies if those companies may have received inaccurate or incomplete credit information. Furnishers also have to modify, delete, or permanently block disputed information that is incomplete, inaccurate, or cannot be verified.

Submit complaints about the credit bureaus dispute process here. They will take appropriate supervisory and enforcement actions to address violations and seek all appropriate corrective measures, possibly including restitution to harmed consumers.

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