Credit Report Questions and Answers
The Frequently Asked Questions piece that follows is reproduced, with permission, from the original written
by Brian W. Peters of the Kintzinger Law Firm, Dubuque, Iowa.
Copyright (c) 2007 by Brian W. Peters, All rights reserved.
This document gives general answers to questions that are frequently asked by our clients.
It is intended for clients of this office, and is not intended as a substitute for our advice in individual cases.
You also should understand that credit reporting law changes from time to time;
we believe the information below was accurate when written, but we cannot guarantee that it will remain correct over time.
We do hope that it will be a useful background, and a way to think about questions to ask us directly.
Q. What is a credit report?
A. A credit report compiles information about your credit past, generally assembling this rather sterile financial gossip from commercial databases. The most useful and complete form of this information is what the Federal Trade Commission calls a "credit file disclosure," which contains all the information about you in a particular database as of the date compiled. This is the report you can receive without charge once a year from each of the three national consumer reporting companies by going to www.annualcreditreport.com.
Q. Why is my lender's report different than mine?
A. Some information on the "credit file disclosure" that you can get is off limits for your lender. The information about who inquired for pre-screened offers, or who verified information on you as a current customer should not be disclosed to anyone but you. Also, medical information contained in the report is supposed to be redacted -- so, for example, "Regional Cancer Center" should show as "Medical Payment Data" or something similar.
Typically the biggest difference is in how the information is formatted. The three national consumer reporting companies are almost always the source of the basic information, but a host of other companies compile and format the information in different ways for different users. For ordinary mortals the formats range from merely puzzling to totally incomprehensible, but for a lender familiar with the report and actually interested in only a small portion of the information, the format can be time saving.
Q. Who's spying on me?
A. Three corporations almost exclusively control the basic collection of consumer credit data: Equifax, Experian, and TransUnion. Their primary source of information is creditors gossiping to them, often on a monthly basis. They also collect some public record data, and occassionally may receive data from you. They do not, for the most part, compare data with each other, so the information compiled by one company is not necessarily the same as the information compiled by another.
Q. What's a FICO score?
A. Fair, Isaacs & COmpany (hence FICO) sells the oldest and best known of the mathematical models for summarizing the data on a credit report. The "FICO score" is a single number between 300 and 850 that roughly indicates the statistical likelihood of a borrower repaying loans based on their credit report; the higher the score the more likely the borrower is to repay the loan in full.
Credit scoring came about to make lending decisions less subjective. As we continue to move toward a national credit economy, it also reduces costs for lenders. Subjective decisions by a local loan officer who actually knows the borrower can qualify people for lending that "pure numbers" could not justify. On the other hand, subjective decisions can disqualify some borrowers for non-financial reasons -- like the color or shape of their skin, or their views on religion. Credit scoring appears to bypass this subjectivity by creating an objective mathematical score to be used by the lender. It also allows the lender to use less time and money training personel to make lending decisions, or even to delegate lending decisions to a computer model, which reduces the lender's costs in processing loans. It can also dramatically reduce the time between credit application and credit approval; when you see credit products that promise "instant approval," these nearly always use credit scoring as the basis for the decision.
Q. How do I improve my credit score?
A. Basically three things: always make loan payments on time, don't carry balances of more than half the credit limit on any credit card, and correct inaccurate entries on your credit report. "Churning" credit cards (that is, continually getting new cards and cancelling old ones) also will reduce your credit score, as will frequently applying for new credit generally. The web and late-night television abound with "experts" and "consultants" whispering that, for a fee, they can let you in on tips and tricks known to no one but a priviledged few that will "dramatically turn around" your credit score. They either are dressing up the information above, talking about things that make only tiny differences in credit scores, or urging you to do something illegal. None of those are things you should be paying them for.
Q. Why do insurance companies and employers check credit scores?
A. Partly this is the siren song of "cheap, objective decision making" being sold to these folks by the consumer credit industry. For insurance companies, a person in financial distress may make more claims under an insurance policy. For example, you are more likely to file a claim for a cracked windshield or a minor accident if you're broke than if you can afford to repair the vehicle without insurance. The trouble is that a low credit score can mean many things other than being broke.
In the case of employers, the usual claim is that people in financial distress are more likely to have poor attendance records, and are more tempted to steal. Quite apart from the question of whether a low credit score shows financial distress, people miss work and steal from their employers for a whole host of reasons unrelated to their careful use of credit.
Regardless of whether it's a good idea, though, both large employers, and particularly insurance companies, often do use credit scoring to make decisions about you.
Q. Some of the stuff on the report is wrong, how do I fix it?
A. Consumer reporting companies are required to investigate and correct inaccurate entries in their databases. You have the greatest chance of getting these corrections made quickly and easily if you first make sure what is in the database, and then supply proof that it is inaccurate. However simple that sounds, these are the most common sources of frustration in making corrections.
First, get current reports from all three credit reporting companies. If you haven't done this in the last year, the cheapest way to get these reports is to go to www.annualcreditreport.com. You can also request these through a toll-free number -- 1-877-322-8228 -- or request by mail (the Federal Trade Commission form in pdf format is here). The process of getting these reports from the AnnualCreditReport.com website requires patience and persistence, but it is entirely possible. All three companies will try to sell you additional products, none of which you need, and none of which are required to get the report.
Then go to each of the credit reporting companies and identify each inaccurate entry, and explain why it is inaccurate.
For Equifax, go to: Equifax Online Dispute,
or telephone: 800 797-7033
or write to:
Equifax Credit Information Services, Inc
P.O. Box 740241
Atlanta, GA 30374
For Experian, go to: Disputes,
or telephone: 800 583-4080
or write to:
P O Box 9595
Allen, TX 75013
For Trans Union, go to: Online Dispute,
or telephone: 800 916-8800
or write to:
P O Box 2000
Chester, PA 19022-2000
In general, writing to the credit reporting company (certified U.S. mail, return receipt requested) is the best practice. Online dispute submission, and telephone dispute submission are probably 2 to 3 days faster -- that's approximately the mail time -- but these methods do not create a record of what you sent, or allow you to attach documents.
Q. What can be changed?
A. The bumper sticker answer to "What can I correct?" is "inaccurate information." Simply put, if your report says you're 90 days delinquent in paying a debt, and you can prove you were not, you can have the inaccurate information removed. On the other hand, if you actually were 90 days delinquent, that information can't be "corrected." There are some categories of special problems:
--Bankruptcy -- yours: The debts that were discharged in the bankruptcy should be noted as "discharged," "included in bankruptcy," "chapter 7 petition," "chapter 13 petition," or some variation of these. What will sometimes happen is that the creditor will instead report that the account is "written off" or "charged off." When a debt is "discharged" it can no longer be collected. When it is "written off" or "charged off" it is still valid, and probably soon to be sold or transferred to someone else to collect. Correct this by supplying the bankruptcy case number, the discharge order, and proof that notice was sent to the creditor.
--Bankruptcy -- someone else's: This is most often a problem for co-signers on a loan when the primary debtor has filed and the co-signer hasn't. Sometimes the original creditor will include the notation "included in bankruptcy" on the information supplied for the co-signer, even though the co-signer hasn't filed. An explanation that the primary debtor has filed bankruptcy, but you have not, is generally sufficient to get this corrected.
--Divorce: Debts or collections which are solely in your ex-spouse's name should not appear on your credit report. These do happen, and should be corrected by proof that this is not your debt. Sadly, it is NOT sufficient that a stipulation or even a court order directed your ex-spouse to pay a debt. The creditor was not a party to the divorce case, and the order has no bearing on the creditor's ability to collect from either you or your ex-spouse on joint debts.
--Credit Limit: The credit limit on a trade line account (VISA, Mastercard, store credit card, etc.) should be reported. For competitive reasons (to keep other issuers from stealing customers) some companies will report the "highest credit balance" rather than the credit limit. Because nearly all scoring models base their result in part on how much of your available credit you're using, this can substantially reduce your score. Capital One has been the most frequent offender in failing to report limits, but other cards will do this on some accounts. You can try to get the limit reported by supplying proof of the limit to the credit reporting agency, or by calling and writing the card issuer and demanding that the limit be reported. If neither of these work, pay off any balance on the card and stop using it. Usually, it is not a good idea to cancel the card (because it can effect the portion of the score dependent on "length of established credit").
--Stray Data: This can be a difficult problem, because the the original data is not necessarily inaccurate, just improperly identified with you. This is sometimes called a "mixed file," and identity theft is really a special form of this problem. The problem comes about because the credit reporting agency doesn't actually maintain a "file" as such on you. Instead, they assemble data about you from their database when a report is requested. They also are aware that the data reported to them is imperfect -- digits in social security numbers can be transposed or omitted, people often change their names when they are married, divorced, or adopted, and some folks use nicknames or variations in the spelling of their names at different times in their lives. To compensate for this, the credit reporting agency will typically match 7 or 8 digits of a social security number and 5 or 6 characters of a first name, or use some similar system. They (correctly) feel that the statistical chance of that imperfect match generating bad data is quite small. The problem is that each of these databases is dealing with a number of entries that vastly exceeds the number of dollars in the federal budget. While the statistical likelihood of any one person's report containing bad data due to this process is low, the likelihood that there will be inaccurate reports is a certainty.
Correction of a stray data problem should almost always be by certified mail, and should be accompanied by as much documentation as you can produce. Keep a record of everything that you send, and continue to follow up to be sure that the stray data is removed and that it stays removed.
--Stale Data: Everything should time off a credit report in seven years except a public record notice of a chapter 7 bankruptcy (which times off 10 years from the date of filing) or a federal tax lien filing. For chapter 13 (wage earner payment plan) bankruptcies, the seven years runs from the date of filing, not the date of discharge. Generally, the credit reporting agencies are good at getting this done automatically. The problem usually arises with "re-dated" entries. One set of these arises from mergers, liquidations, and bankruptcies of creditors. Often the data transferred to the purchasing creditor is in poor shape or in an incompatible format, so the new creditor uses the date the debt was acquired -- rather than the date of last activity, as they should be doing. This also happens with collection agencies and debt purchasers. There is, sadly, a sleazy low end of this industry that deliberately re-dates entries for competitive advantage, but even very ethical collectors and debt purchasers can receive bad or garbled data. Correction of these errors is simply by proving the date of last activity on the account, and should be proven to each of the credit reporting agencies that carry the entry. One special form of this problem related to bankruptcy is that a re-dated entry refering to a bankruptcy discharge can keep the bankruptcy on the credit report after it should have timed off. Another is that a properly discharged debt can be incorrectly reported as "written off" or "charged off" after the liquidation or bankruptcy of the original creditor. In either case, proof of the correct dates and discharge status for the bankruptcy should get the entry removed.