About Credit Bureaus
If you've ever bought a car, owned a home or just used a credit card to finance a purchase, then you have a record with a consumer reporting agency.
Credit bureaus are companies which gather and sell consumers' credit histories to credit-grantors, such as banks, retailers or credit-card companies. Nationwide, there are three major credit bureaus: Equifax, Experian and Trans Union. In addition, credit bureaus sell credit information with other consumer reporting agencies, which, in turn, resell such information to the creditors and other end-users.
While the consumer reporting agencies themselves do not determine if you will get approval for a loan or a credit card, the information they provide to credit grantors does play a valuable role. Credit-granting businesses pay a fee to consumer reporting agencies in order to gain access to their information. Only companies with a legitimate need, such as a mortgage company, car dealership, bank or department store, may purchase consumer credit information. In addition, prospective employers, landlords or insurance underwriters also may request information from your credit file.
Upon request by a legitimate business, the credit reporting agency will furnish the following information about you:
- General information, such as name, Social Security Number, marital status and address (both past and present);
- Employer name and address;
- Debtors and payment history;
- Inquirers of your credit file; and,
- Public record information, such as bankruptcies or liens
Credit reporting agencies do not gather or disseminate information regarding your race, religious preference, medical history or criminal record, if any.
Credit & Divorce
Going through a divorce brings about all kinds of changes. For many, it's painful. For others, it's about new beginnings. Whatever your special circumstances, it's important to know and understand how a divorce affects your credit file.
Whether you're starting out on your own and need to establish credit, moving to or buying a new home, or are now the primary bill payer, it's critical for you to be familiar with the information on your credit report. This is an important time for you to check your three bureau report from Confidential Credit to see all the information and to acquaint yourself with everything-;good or bad-;that might be in your file.
First and foremost, you should know that a divorce decree does not absolve you from your bills. You are still obligated to repay the joint debts you and your ex-spouse incurred while married. In fact, a divorce decree has no impact whatsoever on outstanding debts that you still have. This applies even if a divorce judge directs your ex-spouse to pay a bill and then he or she is unable to fulfill this obligation. It is then your responsibility to pay the debt you two entered into jointly.
In addition, should your ex-spouse be delinquent in paying a joint bill, the creditor has every right to report that negative information about you to a credit bureau. If your ex-spouse doesn't pay at all, the creditor can ask you to repay the debt and can even take legal action against you for unsettled accounts.
If you divorce, you should consider closing joint accounts you and your ex-spouse had and begin to develop credit independently.
Before the divorce is finalized, both you and your spouse should look at all your debts. Decide who will be responsible for paying off which ones. Try to come to as equitable a solution as possible. Remember, both of your credit files will be affected by any negative information that is reported, now and in the future.
If you need further assistance, seek the advice of a credit counseling organization such as Consumer Credit Counselors at the National Foundation for Consumer Credit (NFCC). Call their toll-free number at: 1-800-388-2227 to find the location closest to where you live. More extreme measures may call for the help of a divorce mediator or attorney. The Academy of Family Mediators, American Bar Association or Legal Aid office in your area can provide information or referrals.
Your Credit Rights
Your consumer rights regarding your credit file are ensured by several federal laws. In addition, state law which also apply. The Fair Credit Reporting Act (FCRA) was designed specifically to help ensure that credit bureaus furnish businesses with correct and complete information to use when evaluating your application or your creditworthiness.
The FCRA protects consumers by requiring credit bureaus to adopt reasonable procedures regarding confidentiality, accuracy and proper use of your credit information. In summary, the FCRA states:
- You have the right to know the name of anyone who received your credit report in the last year for most purposes and in the last two years for employment purposes;
- At your request, a credit reporting agency must provide you with your credit file. You are entitled to one free report per year if a) you are unemployed and plan to seek employment in 60 days, b) you are on welfare or c) your report is inaccurate due to fraud. If you have been denied credit, you also may request a free copy of your credit report, as long as the credit file is requested within 60 days of denial notification;
- Inaccurate information must be corrected or deleted by the credit reporting agency, usually within 30 days after you successfully dispute the information;
- A credit reporting agency may not report negative information, in most cases, that is more than seven years old, or in the case of bankruptcies, 10 years old;
- Your consent is required for reports that are provided to employers, or for reports that contain medical information; and,
- Access to your file is limited only to those with a need recognized by the FCRA-;usually to consider an application with a creditor, insurer, employer, landlord or other business.
For the complete text of the FCRA, 15 U.S.C. 1681-1681u and your rights thereunder, go to the Federal Trade Commission's web site http://www.ftc.gov.
What Lenders Look For in a Credit Report
In many cases a lender extending you credit may never actually meet you. And, most of the time, they won't have an opportunity to learn what type of a person you are or to discover for themselves if you are a trustworthy, capable individual. Often, all they have to make a judgment about your ability to pay is by looking at your credit history-; which is an accounting of your ability to repay debt.
When determining if they should extend credit to you or not, lenders may order one of two different types of credit reports in order to examine your credit history:
- Quick Credit Check-This is a basic credit report, showing information from one, two or all three national bureaus. The basic report provides information on your debtors, past and present, and on what type of payment history you have.
- Residential Mortgage Credit Report (RMCR) - A lender will require this report if you are buying a home, and as such applying for a large loan amount. The lender will pull reports from at least two, and usually all three, bureaus. In addition, your current employment may be verified and public records searched for bankruptcies or liens.
Lenders are primarily looking for three things when they pull your credit file. The first is your character. Lenders want to know if you are someone who acts responsibly, takes their debts seriously and pays their bills on time.
Secondly, a lender will look at your capacity to pay your bills on time. This is based upon your income, or the joint income of you and your spouse, and how that corresponds to your total debt.
Finally, a lender will take a look at the possessions you currently have, or your collateral. You might have a car, valued at $10,000, that is already paid off. Your ability to payoff this loan demonstrates that you had the character to eliminate this debt and provides the lender with a possession which can be used as security against repaying the new loan.
All three factors, your character, your ability to pay and possessions or collateral, help provide lenders with needed information which is then used to determine whether or not they think you are creditworthy.
Tips for Improving Your Credit File and Score
Perhaps the most valuable suggestion for improving your credit file, and consequently your credit risk score, is to act responsibly. Know your financial limitations. Understand how your monthly income relates to your monthly bills and debts. Don't spend out of your bounds.
Once it's in your record, the only true way to eliminate negative credit information from your file is the passage of time. Information in your credit history will only be changed if it is inaccurate or if the seven (or 10) year reporting period has elapsed. In some cases, adverse information may be reported without reference to these periods.
If you have a history of bad credit, there are a number of things you can do to start rebuilding a positive credit file:
- First, know what's on your credit report. If you have been denied credit, you have the right to request a free credit report. Or, for a reasonable fee you can conveniently order your consolidated report from Confidential Credit, which includes information from all three national bureaus. Take the time to understand not only what's on your report, but why you have been denied credit.
- Check for mistakes on your credit report. Be sure to examine your files from all three bureaus, as the information may not be the same on each one. If you find errors, take steps to dispute the information in order to remove it from your file.
- If you are having difficulty paying your bills, develop a plan now. Make a list of everyone you owe and how much you owe. Contact your creditors and discuss payment options. Begin now to catch up with late payments. These efforts will show you are earnest in meeting your obligations.
- Look for ways you can consolidate bills. You might be able to do a balance transfer to another credit card with a lower interest rate and also eliminate three or four other credit card accounts you currently have.
- Identify ways you can decrease your spending and increase your income. Ask a friend or family member to help you come up with a realistic budget that will help you catch up with late payments.
- Finally, don't use credit again until you are on more solid footing. You may want to cancel-;or just hide-;your credit cards until you are in a financial position to use them responsibly again.
If you are just starting out on your own, perhaps after a divorce or just out of college, you'll want to begin establishing a positive credit file. This will play an important role in determining your future creditworthiness and in ensuring that you have a good credit score when it comes to evaluating your file for a mortgage or other type of loan. If you have little or no prior credit history, consider these tips:
Limit the number of accounts you have. Resist the temptation to sign up for every credit card you can. Find a revolving credit card that has a reasonable credit limit ($300 maximum) and stay within your budget. Pay your bills on time. Every month, your creditors release information to the credit bureaus. Make sure your creditors are reporting only positive information about your bill-paying history. Ask a family member to help you get credit. If you have little or no credit history, you may need the assistance of someone with an established and positive credit record to co-sign a loan for you. However, if you do this, be sure you are responsible in making all your loan payments on time.
Remember, your credit history influences your ability to rent or buy a house, get a job, buy insurance and purchase items with a credit card. Many lenders and creditors consider it a direct reflection of your character. Start now to ensure that you have-;and maintain-;a good credit history.
About Credit Repair Companies
If you have negative information in your credit file, you may want to think twice before calling a credit repair company to help you. For a fee, many credit repair companies will claim they can "fix or clean up" your credit record. Some will even promote that they can eliminate bankruptcies or liens from your file forever. In truth, these companies may end up costing you money-;sometimes putting you in even worse financial shape than before.
Generally, you can do everything a credit repair company claims to be able to do, for little or no money. All that's required of you is a little bit of time, a concentrated effort, and an action plan to repay debt and get back on the road to a healthy financial future.
Under the Credit Repair Organizations Act, credit repair companies must give you a copy of the "Consumer Credit File Rights Under State and Federal Law" before you sign a contract. In addition, they have to supply you with a written contract which clearly defines your rights and obligations. Under law, a credit repair organization cannot do any of the following:
- 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 have the right to cancel the contract without paying any fees.
If you are considering enlisting the help of a credit repair organization, call the Better Business Bureau in your area to learn more about the company. Even better, contact a nonprofit credit counseling service. You'll find them listed in your local telephone book or you could check with your bank or a consumer protection office to see if they have some suggestions.
You've always had a spotless credit history. You pay your bills on time. And you live well within your financial means. But, recently you've received a few calls from collection agencies requesting payment for items you didn't buy. Before you dismiss these actions as a mistake, investigate.
You could be the victim of credit fraud.Each year individuals with good credit histories fall prey to criminals who steal their identity and run up thousands of dollars in bad debt under their names. If it happens to you, through no fault of your own, you could be faced with years of trying to clear your credit history of false information.
If you suspect someone has used your name, Social Security Number or driver's license to obtain credit, do the following:
- Call the fraud units of the three credit bureaus: Equifax 1-800-685-1111, Experian 1-800-301-7195 and Trans Union 1-281-874-0169.
- Report identity theft crimes to the local police or law enforcement agency in your area.
- Put a "fraud alert" on your credit file. Also, report the possible theft to all credit card issuers. Cancel all your current cards.
- Notify your bank and/or savings and loan of the theft. Request new account numbers and a new ATM number and password.
- Consider changing your driver's license number if you suspect someone has been using it to write bad checks.
To prevent identity fraud from happening, here are some steps you can take:
- Don't carry extra credit cards, your birth certificate, passport or Social Security number with you unless necessary. This will minimize the amount of information a thief can steal from you.
- Don't print your Social Security Number on your checks. Only give it out if absolutely necessary.
- Shield the ATM screen when using it in a public place.
- Tear up pre-approved credit card offers that arrive in the mail.
- Never leave a receipt with your credit card number on it in a public place. Take it home with you to a safe place or tear it up.
- Keep current with the information that is on your credit file. Don't learn about negative information when you go to apply for a loan. Be proactive about your credit historyprotect it!by checking your files with Confidential Credit.
If you know you are a victim of credit fraud the following organizations may be of help:
- National Fraud Information Center: 1-800-876-7060
- Consumer Credit Counseling Services: 1-800-873-2227
- CSC Credit Services: 1-800-272-9281
Also check the Yellow Pages listings for your local offices of:
- The Better Business Bureau
- The Regional Consumer Protection Office of the Attorney General.