Library

Credit Rating

Credit Reporting Agencies

Three agencies accumulate data on which to base your credit history. Their names, addresses and phone numbers are shown below. It is normally very difficult to speak to a live person at these agencies; instead you are directed through a voice-mail maze which will give you instructions on how to get a copy of your report, what it may cost, or how to deal with a problem you may have. In any case, it is better to communicate in writing. Use certified mail so you will get a receipt showing that the agency received your letter and when they received it.

EQUIFAX
P.O. Box 105873
Atlanta GA 30348
(800) 685 1111

EXPERIAN (formerly TRW)
P.O. Box 8030
Layton UT 84041-8030
(800) 520 1221
(800) 682 7654

TRANS-UNION
P.O. Box 390
Springfield PA 19064
(800) 961 8800
(800) 851 2674

Credit Repair

You see the advertisements 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:

• "Credit problems? No problem!"
• "We can erase your bad credit -- 100% guaranteed."
• "Create a new credit identity legally."
• "We can remove bankruptcies, judgments, liens, and bad loans from your credit file forever!"

The Scam

Everyday, 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;
• 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.

The Truth

No one can legally remove accurate and timely negative information from a credit report. If you wish to dispute information contained in your credit report, the law allows you to request a reinvestigation of the information in question. There is no charge for this. Everything a credit repair clinic can do for you legally, you can do for yourself at little or no cost. According to the Fair Credit Reporting Act:

• You are entitled to a free copy of your credit report if you've been denied credit, insurance or employment within the last 60 days. If your application for credit, insurance, or employment is denied because of information supplied by a credit bureau, the company you applied to must provide you with that credit bureau's name, address, and telephone number.
• You can dispute mistakes or outdated items for free. Ask the credit reporting agency for a dispute form or submit your dispute in writing, along with any supporting documentation. Do not send them original documents.

Reporting Negative Information

Accurate negative information generally can be reported for seven years, but there are exceptions:

• Bankruptcy information can be reported for 10 years;
• Information reported because of an application for a job with a salary of more than $75,000 has no time limitation;
• Information reported because of an application for more than $150,000 worth of credit or life insurance has no time limitation;
• Information concerning a lawsuit or a judgment against you can be reported for seven years or until the statute of limitations runs out, whichever is longer; and
• Default information concerning U.S. Government insured or guaranteed student loans can be reported for seven years after certain guarantor actions.

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 protections for you. For example, a credit repair company cannot:

• make false claims about their services;
• charge you until they have completed the promised services; 
• 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 terms 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; 
• the company's name and business address.

Have You Been Victimized?

Many states have laws strictly regulating credit repair companies. States may be helpful if you've lost money to credit repair scams.

For More Information

You can file a complaint with the FTC by contacting the Consumer Response Center by phone: toll-free 1-877-FTC-HELP (382-4357); TDD: 202-326-2502; by mail: Consumer Response Center, Federal Trade Commission, 600 Pennsylvania Ave, NW, Washington, DC 20580; or through the Internet, using the online complaint form. Although the Commission cannot resolve individual problems for consumers, it can act against a company if it sees a pattern of possible law violations.
This document was written in February 1998 by the FTC.

Types of Credit Reports

• Single Bureau Report: This report provides information from a single bureau and typically costs eight to ten dollars.
• Three Bureau Merged Report: This report provides information from all three bureaus and typically costs twenty to thirty dollars.
• Standard Factual Credit Report: This is a more detailed credit report and costs forty to sixty dollars.

• Identifying information
• Employment information
• Credit information
• Public records if any (tax liens, judgements, bankruptcy etc)
• Inquiries for your record by others

The following categories are NOT included in your report:

• Race
• Religion
• Health information
• Driving record
• Criminal record, if any
• Political affiliations, if any
• Income

Credit and Your Consumer Rights

A good credit rating is very important. Businesses inspect your credit history when they evaluate your applications for credit, insurance, employment and leases. Based on your credit payment history, businesses may choose to grant or deny credit, provided you receive fair and equal treatment. Sometimes, things happen that can cause credit problems: a temporary loss of income, an illness, even a computer error. Solving credit problems may take time and patience, but it doesn't have to be an ordeal.

Your Credit Report

Your credit payment history is recorded in a file or report. These files or reports are maintained and sold by consumer reporting agencies (CRAs). One type of CRA is commonly known as a credit bureau. You have a credit record on file at a credit bureau if you have ever applied for a credit or charge account, a personal loan, insurance, or a job. Your credit record contains information about your income, debts, and credit payment history. It also indicates whether you have been sued, arrested, or have filed for bankruptcy.

Your rights under the Fair Credit Reporting Act:

• You have the right to receive a copy of your credit report. The copy of your report must contain all of the information in your file at the time of your request.
• You have the right to know the name of anyone who received your credit report in the last year for most purposes or in the last two years for employment purposes.
• Any company that denies your application must supply the name and address of the CRA they contacted, provided the denial was based on information given by the CRA.
• You have the right to a free copy of your credit report when your application is denied because of information supplied by the CRA. Your request must be made within 60 days of receiving your denial notice.
• If you contest the completeness or accuracy of information in your report, you should file a dispute with the CRA and with the company that furnished the information to the CRA. Both the CRA and the furnisher of information are legally obligated to investigate your dispute.

Your Credit Application

When creditors evaluate a credit application, they cannot lawfully engage in discriminatory practices.

Your rights under the Equal Credit Opportunity Act:

• You cannot be denied credit based on your race, sex, marital status, religion, age, national origin, or receipt of public assistance.
• You have the right to have reliable public assistance considered in the same manner as other income.
• If you are denied credit, you have a legal right to know why.

Your Credit Billing and Electronic Fund Transfer Statements

It is important to check credit billing and electronic fund transfer account statements regularly. These documents may contain mistakes that could damage your credit status or reflect improper charges or transfers. If you find an error or discrepancy, notify the company and contest the error immediately. The Fair Credit Billing Act (FCBA) and Electronic Fund Transfer Act (EFTA) establish procedures for resolving mistakes on credit billing and electronic fund transfer account statements, including:

• charges or electronic fund transfers that you, or anyone you have authorized to use your account have not made;
• charges or electronic fund transfers that are incorrectly identified or show the wrong amount or date;
• computation or similar errors;
• failure to reflect payments, credits, or electronic fund transfers properly;
• not mailing or delivering credit billing statements to your current address, as long as that address was received by the creditor in writing at least twenty days before the billing period ended;
• charges or electronic fund transfers for which you request an explanation or documentation, due to a possible error.

Your Debts and Debt Collectors

You are responsible for your debts. If you fall behind in paying your creditors or an error is made on your account, you may be contacted by a "debt collector." A debt collector is any person, other than the creditor, who regularly collects debts owed to others. This includes lawyers who collect debts on a regular basis. You have the right to be treated fairly by debt collectors.

Your rights under the Fair Debt Collection Practices Act:

• Debt collectors may contact you only between 8 a.m. and 9 p.m.
• Debt collectors may not contact you at work if they know your employer disapproves.
• Debt collectors may not harass, oppress, or abuse you.
• Debt collectors may not lie when collecting debts, such as falsely implying that you have committed a crime.
• Debt collectors must identify themselves to you on the phone.
• Debt collectors must stop contacting you if you ask them to in writing.

Solving Your Credit Problems

Your credit report influences your purchasing power, as well as your chances to get a job, rent or buy an apartment or a house, and buy insurance. A history of timely credit payments helps you get additional credit. Accurate negative information can stay on your report for seven years. A bankruptcy can stay on your report for 10 years. If you are having problems paying your bills, contact your creditors at once. Try to work out a modified payment plan with them that reduces your payments to a more manageable level. Don't wait until your account has been turned over to a debt collector.

Here are some additional tips for solving credit problems:

• If you want to contest a credit report, bill or credit denial, contact the appropriate company in writing and send it "return receipt requested."
• When you contest a billing error, include your name, account number, the dollar amount in question, and the reason you believe the bill is wrong.
• If in doubt, request written verification of a debt.
• Keep all your original documents, especially receipts, sales slips, and billing statements. You will need them if you dispute a credit bill or report. Send copies only. It may take more than one letter to correct problems.
• Be skeptical of businesses that offer instant solutions to credit problems.
• Be persistent. Resolving credit problems can take time and effort.
• There is nothing a credit repair company can do for you for a fee, that you cannot do for yourself for little or no cost.

For More Information

You can file a complaint with the FTC by contacting the Consumer Response Center by phone: toll-free 1-877-FTC-HELP (382-4357); TDD: 202-326-2502; by mail: Consumer Response Center, Federal Trade Commission, 600 Pennsylvania Ave, NW, Washington, DC 20580; or through the Internet, using the online complaint form. Although the Commission cannot resolve individual problems for consumers, it can act against a company if it sees a pattern of possible law violations.
This document was written in January 1998 by the FTC.

Credit and Divorce

Jane and Matt recently divorced. Their divorce decree stated that Matt would pay the balances on their three joint credit card accounts. Months later, after Matt neglected to pay off these accounts, all three creditors contacted Jane for payment. She referred them to the divorce decree, insisting that she was not responsible for the accounts. The creditors correctly stated that they were not parties to the decree and that Jane was still legally responsible for paying off the couple's joint accounts. Jane later found out that the late payments appeared on her credit report.

Individual Account

Your income, assets, and credit history are considered by the creditor. Whether you are married or single, you alone are responsible for paying off the debt. The account will appear on your credit report, and may appear on the credit report of any "authorized" user. However, if you live in a community property state (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, or Wisconsin), you and your spouse may be responsible for debts incurred during the marriage, and the individual debts of one spouse may appear on the credit report of the other.

Advantages/Disadvantages: If you're not employed outside the home, work part-time, or have a low-paying job, it may be difficult to demonstrate a strong financial picture without your spouse's income. If you open an account in your name and are responsible, no one can negatively affect your credit record.

Joint Account

Your and your spouse's income, financial assets and credit history are considerations for a joint account. No matter who handles the household bills, you and your spouse are responsible for seeing that debts are paid. A creditor who reports the credit history of a joint account to credit bureaus must report it in both names (if the account was opened after June 1, 1977).

Advantages/Disadvantages: An application combining the financial resources of two people may present a stronger case to a creditor who is granting a loan or credit card. When two people apply together for the credit, each is responsible for the debt. This is true even if a divorce decree assigns separate debt obligations to each spouse. Former spouses who run up bills and don't pay them can hurt their ex-partner's credit history on jointly held accounts.

Account "Users"

If you open an individual account, you may authorize another person to use it. If you name your spouse as the authorized user, a creditor who reports the credit history to a credit bureau must report it in your spouse's name as well as yours (if the account was opened after June 1, 1977). A creditor may report the credit history in the name of any other authorized user.

Advantages/Disadvantages: User accounts often are opened for convenience. They benefit people who might not qualify for credit on their own, such as students or homemakers. While these people may use the account, you, not they, are contractually liable for paying the debt.

If You Divorce

If you're considering divorce or separation, pay special attention to the status of your credit accounts. If you maintain joint accounts during this time, it's important to make regular payments so your credit record won't suffer. As long as there's an outstanding balance on a joint account, you and your spouse are responsible for it.

For More Information

You can file a complaint with the FTC by contacting the Consumer Response Center by phone: toll-free 1-877-FTC-HELP (382-4357); TDD: 202-326-2502; by mail: Consumer Response Center, Federal Trade Commission, 600 Pennsylvania Ave, NW, Washington, DC 20580; or through the Internet, using the online complaint form. Although the Commission cannot resolve individual problems for consumers, it can act against a company if it sees a pattern of possible law violations.
This document was written in January 1998 by the FTC.

Fair Credit Reporting Act

If you've ever applied for a charge account, personal loan, insurance, or job, there's a file about you. This file contains information about where you work, live, how you pay your bills, and whether you've been sued, arrested, or filed for bankruptcy.

Q. How do I find the CRA that has my report?

A. Contact the CRAs listed in the Yellow Pages under "credit" or "credit rating and reporting." Because more than one CRA may have a file on you, call each until you locate all the agencies maintaining your file. The three major national credit bureaus are:

• Equifax, P.O. Box 740241, Atlanta, GA 30374-0241; (800) 685-1111.
• Experian (formerly TRW), P.O. Box 949, Allen, TX 75013; (888) EXPERIAN (397-3742).
• Trans Union, 760 West Sproul Road, P.O. Box 390, Springfield, PA 19064-0390; (800) 916-8800.

In addition, anyone who takes action against you in response to a report supplied by a CRA--such as denying your application for credit, insurance, or employment--must give you the name, address, and telephone number of the CRA that provided the report.

Q. Do I have a right to know what's in my report?

A. Yes, if you ask for it. The CRA must tell you everything in your report, including medical information, and in most cases, the sources of the information. The CRA also must give you a list of everyone who has requested your report within the past year--two years for employment related requests.

Q. Is there a charge for my report?

A. Sometimes. There's no charge if a company takes adverse action against you, such as denying your application for credit, insurance or employment, and you request your report within sixty days of receiving the notice of the action. The notice will give you the name, address, and phone number of the CRA. In addition, you're entitled to one free report a year if (1) you're unemployed and plan to look for a job within sixty days, (2) you're on welfare, or (3) your report is inaccurate because of fraud. Otherwise, a CRA may charge you up to $8 for a copy of your report.

Second, tell the creditor or other information provider in writing that you dispute an item. Many providers specify an address for disputes. If the provider then reports the item to any CRA, it must include a notice of your dispute. In addition, if you are correct--that is, if the information is inaccurate--the information provider may not use it again.

Q. What can I do if the CRA or information provider won't correct the information I dispute?

If you tell the information provider that you dispute an item, a notice of your dispute must be included anytime the information provider reports the item to a CRA.

Q. Can my employer get my report?

A. Only if you say it's okay. A CRA may not supply information about you to your employer, or to a prospective employer, without your consent.

Q. Can creditors, employers, or insurers get a report that contains medical information about me?

A. Not without your approval.

Q. What should I know about "investigative consumer reports?"

A. "Investigative consumer reports" are detailed reports that involve interviews with your neighbors or acquaintances about your lifestyle, character and reputation. They may be used in connection with insurance and employment applications. You'll be notified in writing when a company orders such a report. The notice will explain your right to request certain information about the report from the company to which you applied. If your application is rejected, you may get additional information from the CRA. However, the CRA does not have to reveal the sources of the information.

Q. How long can a CRA report negative information?

A. Seven years. There are certain exceptions:

• Information about criminal convictions may be reported without any time limitation.
• Bankruptcy information may be reported for 10 years.
• Information reported in response to an application for a job with a salary of more than $75,000 has no time limit.
• Information reported because of an application for more than $150,000 worth of credit or life insurance has no time limit.
• 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.

Q. Can anyone get a copy of my report?

A. No. Only people with a legitimate business need, as recognized by the FCRA. For example, a company is allowed to get your report if you apply for credit, insurance, employment, or to rent an apartment.

Q. How can I stop a CRA from including me on lists for unsolicited credit and insurance offers?

A. Creditors and insurers may use CRA file information as a basis for sending you unsolicited offers. These offers must include a toll-free number for you to call if you want to remove your name and address from lists for two years; completing a form that the CRA provides for this purpose will keep your name off the lists permanently.

Q. Do I have the right to sue for damages?

A. You may sue a CRA, or a user or provider of CRA data, in state or federal court for most violations of the FCRA. If you win, the defendant will have to pay damages and reimburse you for attorney fees to the extent ordered by the court.

Q. Are there other laws I should know about?

A. Yes. If your credit application was denied, the Equal Credit Opportunity Act requires creditors to specify why, provided you ask. For example, the creditor must tell you whether you were denied because you have "no credit file" with a CRA, or because the CRA says you have "delinquent obligations." The ECOA also requires creditors to consider additional information you might supply about your credit history. You may want to find out why the creditor denied your application before you contact the CRA.

Q. Where should I report violations of the law?

A. Although the FTC can't act as your lawyer in private disputes, information about your experiences and concerns is vital to the enforcement of the Fair Credit Reporting Act. Send your questions or complaints to: Consumer Response Center – FCRA, Federal Trade Commission, Washington, D.C. 20580.

For More Information

You can file a complaint with the FTC by contacting the Consumer Response Center by phone: toll-free 1-877-FTC-HELP (382-4357); TDD: 202-326-2502; by mail: Consumer Response Center, Federal Trade Commission, 600 Pennsylvania Ave, NW, Washington, DC 20580; or through the Internet, using the online complaint form. Although the Commission cannot resolve individual problems for consumers, it can act against a company if it sees a pattern of possible law violations.
This document was written in March 1999 by the FTC.

What is a FICO score?

A FICO score is a generic term for a credit bureau score and specifically refers to the score derived from the FICO statistical model. A credit bureau score measures the relative degree of risk a potential borrower represents to the lender or investor. Each of the three credit bureaus have their own method, or statistical model, for calculating scores. The bureaus rely exclusively on their own data for calculating scores. The credit bureaus and their respective models are:

• Equifax (formally CBI) / Beacon model
• Trans Union / Emperica model
• Experian (formally TRW) / FICO model

Fair, Isaac & Co. (FICO) began its pioneering work with credit scoring in the late 1950s. Since then, scoring has become widely accepted by lenders as a reliable means of credit evaluation. A credit score attempts to condense a borrowers credit history into a single number. Fair, Isaac & Co. and the credit bureaus do not reveal how these scores are computed. The Federal Trade Commission has ruled this to be acceptable. FICO scores vary from approximately 375 to 900 points. Higher scores are better.To get the best interest rates, you will generally need to score 680 or higher. If your score is at least 680, you are considered to have  'A' credit. If your score is below 620, you will generally pay a higher rate on your mortgage, and your credit is considered "sub prime." Depending on your score and credit, you may be considered to be a 'B', 'C', or 'D' credit borrower. If your score is between 620 and 680, based upon factors such as income, assets, employment, etc., the lender may decide into which credit category you fall. Presented below is a general guide which can give you an idea of your credit ranking (A+ through E) based upon your credit score:

• Late Payments, Collections, Bankruptcies--35%
• Outstanding Debt--30%
• Length of Credit History--15%
• Types of Credit--10%
• Inquiries (Applications for New Credit)--10%

Frequently Asked Questions (FAQs)How can I increase my score?

While it is difficult to increase your score over the short run, here are some tips to increase your score over of time.

• Pay your bills on time. Late payments and collections can have a serious impact on your score. Note that late payments, collections and bankruptcies are the most heavily weighted of the reason codes.
• Reduce your credit-card balances. If you consistently have high balances on your credit cards, your credit score will be negatively affected. Note that this applies to the second most heavily weighted reason code.
• If you have limited credit, obtain additional credit. Not having sufficient credit can negatively affect your score.
• Do not apply for credit frequently. Having a large number of inquiries on your credit report can worsen your score.

If several companies check my credit, will that hurt my score?

That depends. The scoring system has changed to be more lenient in this regard. A few inquiries over a short period of time won't hurt your score. Mortgage lenders realize that when a borrower is shopping for a rate, their credit may be investigated by more than one lender.

What if there is an error on my credit report?

If you see an error on your report, report it to the credit bureau. The three major bureaus in the U.S., Equifax (1-800-685-1111), Trans Union (1-800-916-8800) and Experian (1-888-397-3742). All have procedures for promptly correcting errors. Your mortgage company may also be able to help you correct credit report errors.

How do I correct errors on my report?

Few aspects of both consumer and real estate financing have come under as much written and verbal gunfire as has the credit reporting industry. The skyrocketing volume of credit transactions has put a tremendous strain on credit reporting agencies which deal with millions of requests for information daily.

Cosigning a Loan

What would you do if a friend or relative asked you to cosign a loan? Before you answer, make sure you understand what cosigning involves. Under federal law, creditors are required to give you a notice that explains your obligations. The cosigner's notice states:

• You are being asked to guarantee this debt. Think carefully before you do. If the borrower does not pay the debt, you will have to. Be sure you can afford to pay if you have to, and that you want to accept this responsibility.
• You may have to pay up to the full amount of the debt if the borrower does not pay. You may also have to pay late fees or collection costs, which increase this amount.
• The creditor can collect this debt from you without first trying to collect from the borrower.* The creditor can use the same collection methods against you that can be used against the borrower, such as suing you, garnishing your wages, etc. If this debt is ever in default, that fact may become a part of your credit record.
• This notice is not the contract that makes you liable for the debt.
• Laws in your state may forbid a creditor from collecting from a cosigner without first trying to collect from the primary debtor.

Despite the risks, there may be times when you want to cosign. Your child may need a first loan, or a close friend may need help. Before you cosign, consider this information:

• Be sure you can afford to pay the loan. If you're asked to pay and can't, you could be sued or your credit rating could be damaged.
• Even if you're not asked to repay the debt, your liability for the loan may keep you from getting other credit because creditors will consider the cosigned loan as one of your obligations.
• Before you pledge property to secure the loan, such as your car or furniture, make sure you understand the consequences. If the borrower defaults, you could lose these items.
• Ask the lender to calculate the amount of money you might owe. The lender isn't required to do this, but may if asked. You also may be able to negotiate the specific terms of your obligation. For example, you may want to limit your liability to the principal on the loan, and not include late charges, court costs, or attorneys' fees. In this case, ask the lender to include a statement in the contract similar to: "The cosigner will be responsible only for the principal balance on this loan at the time of default."
• Ask the lender to agree, in writing, to notify you if the borrower misses a payment. That will give you time to deal with the problem or make back payments without having to repay the entire amount immediately.
• Make sure you get copies of all important papers, such as the loan contract, the Truth-in-Lending Disclosure Statement, and warranties, if you're cosigning for a purchase. You may need these documents if there's a dispute between the borrower and the seller. The lender is not required to give you these papers; you may have to get copies from the borrower.
• Check your state law for additional cosigner rights.

For More Information

You can file a complaint with the FTC by contacting the Consumer Response Center by phone: toll-free 1-877-FTC-HELP (382-4357); TDD: 202-326-2502; by mail: Consumer Response Center, Federal Trade Commission, 600 Pennsylvania Ave, NW, Washington, DC 20580; or through the Internet, using the online complaint form. Although the Commission cannot resolve individual problems for consumers, it can act against a company if it sees a pattern of possible law violations.
This document was written in March 1997 by the FTC.