Personal Credit

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Reporting and Disputing Credit Report Information
Write to the bureau which supplied the credit report.  Make sure the following information is included:

• Your full name including any suffixes
• Your complete mailing address
• Your birthday
• Your social security number
• Name and account number of the creditor and item in question
• The reason why you are disputing the information
• Your signature

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Marriage & Divorce
While marriage can ease some financial burden, since a couple can combine their resources, it also creates new responsibilities and issues that affect their credit history.

• Changing your name: If you change your name, it is of utmost importance that the credit bureaus are notified.  Otherwise, your credit history could be erased.
• Keep credit in your own name.  Women especially must make sure they keep some credit in their own name - Jane Doe, rather than Mrs. John Doe, for example.  Every year, women who have previously had good credit are denied credit because they have no credit history in their own names.
• Joint accounts mean joint responsibility.  This is true even if a divorce decree includes provisions about one of the parties paying the bills.  According to the creditor, you are both responsible for the bills, even if only one of you ran up the charges.  To be released from liability for the debt, you must arrange with the creditor to change the account or close it entirely and open a new one.

Having Children
Starting a family is another life change that adds stress to your credit.  Many parents' credit card bills skyrocket as they equip their homes and lifestyles to accommodate their children.  It is important that you watch your credit closely when you add responsibilities such as children.  That way you know your credit will be available when you need it, like when your little one flies the coop to that prestigious and very expensive university.

The Death of Your Spouse
If you have a joint account with your spouse, a creditor is prohibited from automatically closing the account or changing the terms as a result of your spouse dying.  Instead, the creditor may ask that you update your application or reapply in your own name.  After this, the creditor must decide whether to continue to extend you credit or change your credit limits.  While the application is in the midst of being reviewed, the creditor must let you use your account free of new restrictions.

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What They Look For:

Pay Your Bills On Time
Creditors always check to see that the prospective borrower is worth the risk.  So pay your bills on time!  This demonstrates that you are what they are looking for.

Good credit does not necessarily mean perfect credit.  "Good" credit can include a few minor problems, such as:

• Up to two credit card payments 30 days late.
• One installment payment, such as an auto or student loan payment, 30 days late.

Keep Your Debt Load Reasonable
One factor any creditor must analyze before extending credit is the total debt of the person applying.  If a large portion of your income each month is already dedicated to paying off other debt, the lender will have doubts you will be able to pay back an additional loan.

Financial experts advise that non-mortgage debt payments should not exceed 10-15% of your take home pay each month.  If your debts are currently too high, consider alleviating some before applying for new credit.

A note about cosigning:  If you cosign somebody else's loan, the outstanding amount is considered your debt, even if the individual for whom you cosigned pays all the bills.  Because cosigning means you have contracted to pay back the loan if the other party does not, it is considered one of your liabilities.  Therefore, think carefully about cosigning, even if it is for someone you know will pay the debt; it does affect your credit.

Avoid Unnecessary Inquiries
When you permit a creditor, employer, or other business to check your credit report, an "inquiry" is added to the report itself.  This is a note stating that someone has checked your credit.  (Checking your own credit report does not count.)  An inquiry usually is visible on the credit report for up to two years.

A lender considering you for a loan will look at the number of inquiries recorded there and the time they occurred.  A large number of inquiries taking place over a short period of time may mean that you:

• Applied for a large amount of credit due to financial difficulty.
• Overextended yourself by taking on more debt that you can really repay.

Eliminate Excess Unused Credit
Just as a high number of inquiries suggests you may be overextending yourself, a surplus of available credit means that you are capable of overextending yourself in the future, even though you have not done so before.

Although some my believe that having many credit cards with high limits is a sign of good credit, too much of this can make them appear as a poor credit risk.

The lender needs to be assured that you will continue to be able to repay your debt in the future.  But if thousands of dollars of unused credit are available, it is possible that you may spend it all the month after your loan closes and suddenly have more debt than you can pay off.

To not concern the lender, it is recommended that you close unused credit accounts before applying for a large loan, and/or consider reducing your credit limits.  If you do that, ask the creditors to record that the account was closed or changed at the consumers' request.  This will stop anyone from thinking that the bank closed the account because you had bad payment habits.

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• Conduct a credit transaction.
• Make a decision on employment.
• Underwrite insurance.
• Conduct a legitimate business transaction.

Fines up to $5,000 and imprisonment for up to one year are consequences of knowingly and willfully obtaining a credit report under false pretenses.

The 1997 version of the FCRA further protects credit-active consumers and gives them more control over their credit information.

Highlights of the updated version of the FCRA are summarized below:

Credit Reports

• Anyone who reviews your credit report for any reason other than those listed above is guilty of a felony.  Credit bureaus and other information providers must make sure they are disclosing credit information only to users who are obtaining it for legal, permissible reasons as outlined in the FCRA.  Any credit grantor or other entity that wants to get credit reports from a credit bureau must present to the bureau the legally authorized purpose(s) for which it will use the reports.
• Free credit reports must be available once a year to victims of identity fraud and the unemployed or poor.  Individuals who have been denied credit may obtain a free credit report within 60 days.  Anyone else requesting a credit report will be charged up to $8.00 per report (price can be adjusted for inflation).
• Potential employers may no longer use credit reports to make employment decisions without the permission of the job applicant.  Before the potential employer can deny a position to an applicant based on the information provided by the report, the applicant must receive a copy of the report.

• Whenever a consumer disputes credit information on his or her credit report, the three major credit bureaus, Experian, Equifax, and Trans Union, must notify each other of the reinvestigation.  It was previously the consumer's responsibility.
• Credit bureaus must use information supplied by the consumer in addition to the credit grantor when reinvestigating incorrect or incomplete credit information.
• Reinvestigations sought out by consumers must be completed within 30 days by the major credit bureaus.
• If information reported by a credit grantor to a credit bureau continues to be be disputed by a consumer after the information has been reinvestigated by the credit grantor, the credit grantor may not report the information to the credit bureaus without stating that the data is still being disputed.
• Bureaus, as well as credit grantors (banks and retailers), must give consumers better notices of their rights.  In addition to including the name and address of the credit bureau that supplied the report on which the decision was based, the following information must also be included:
  • Phone number of the credit bureau
  • A statement that the credit bureau did not decide to take adverse action
  • Notice of the consumer's right of free access to their report from the bureau by submitting a written request within 60 days
  • Notice of the consumer's right to dispute the accuracy or completeness of the information in their report with the bureaus.

• Banks, retailers, and credit card issuers that report credit information to credit bureaus are held responsible for making sure that the information reported is as correct as can be.  Also, these credit grantors are supposed to help credit bureaus with reinvestigations.
• If a consumer closes out a credit account, the credit bureau, bank, or retailer must label the account as one in good standing that was requested by the consumer to close.

• Banks, retailers, and credit card issuers purchase prescreened lists from credit bureaus and use them to identify qualified and interested consumers to whom they market credit cards and other retail loans. These prescreened lists have also been affected by the FCRA amendment.  Card issuers can deny credit if the consumer does not qualify for the prescreening criteria.
• Banks are required to give consumers a new prescreening disclosure that explains that the offer results from prescreening by a credit bureau, and that the consumers may notify the credit bureau if they want to be excluded from future prescreening.
• The three major bureaus must provide a joint toll-free number for consumers to call who do not want be on the prescreened lists.

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The ECOA mandates that every consumer who applies for credit should have an equal chance to obtain it. This does not guarantee that credit will be granted, but rather that the criteria used to determine whether an application is accepted or rejected will be consistently applied to all applicants.

The FCRA guarantees the protection of the consumers' rights and privacy even while the credit reporting industry transmits credit histories so quickly that stores can offer instant credit to qualified consumers.

How Can I Learn More About Credit and The Law?
The federal government keeps several informative Web sites with tons of information about consumer credit issues. These two relate to the FCRA specifically:

• http://www.ftc.gov/bcp/conline/pubs/credit/fcra.htm (summarizes the law)
• http://www.ftc.gov/os/statutes/fcra.htm (gives the actual text of the law)

Requirements for Accessing Credit Reports
To guard against abuse and to protect your privacy, it is a FCRA necessity that all businesses meet the following requirements before they can obtain credit information:

• Proof of a permissible purpose under federal law
• A background check and on-site inspection of the business
• A current business license
• A signed contract stating that the business must use the data properly

Your credit report can only be accessed without your permission when prescreening for credit offers or if a judge subpoenas your credit information. You can get out of prescreening by contacting the three major credit bureaus, although you will no longer receive pre-approved credit card offers.

Accepted or Rejected?
You have the right to know whether or not your application for credit was accepted within 30 days of filing it.  If it was rejected, the creditor must either immediately give you the reasons behind the decision or provide you with reasons if you ask for them within 60 days.  Indefinite or vague reasons are illegal, so ask for specifics.

If, because of a credit report's contents, credit has been denied to you, the creditor must also provide you with information about how to contact the credit bureau that supplied the credit report. This is one of the few cases under which you are allowed access to a free credit report directly from the credit bureau.

What If There Is Inaccurate Information in My Credit Report?
The law guarantees your right to dispute inaccurate information on your credit report for free. If you find an error in your credit report, contact the credit bureau by phone or mail. The bureau will verify with the source of the information and send you an update. This process can take up to 30 days. If you still disagree with the information given, you can contribute your own statement to the credit report. For more detailed information about how to contact the credit bureaus to dispute inaccuracies on your report, see the Dispute Information.

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In the early 1980s the three major credit bureaus, Experian, Equifax and Trans Union all worked with the Fair, Isaac company to create generic scoring models which allowed each bureau to offer a score based solely on the contents of the credit bureau's data on someone. Creditors-especially those in the mortgage industry-frequently use the scores to decide who receives loans. They can order your score (called a FICO score) from one of the bureaus, but it only draws upon information from your credit report. Individual creditors often take into consideration other information, such as your salary or how much time you have been employed at the same company when making loan decisions.

Each credit bureau has its own system for developing credit scores. However, the scoring models have been normalized so that a numerical score at one bureau is equal to the same numerical score at another. Thus, a score of 600 from Equifax indicates the same creditworthiness as a score of 600 from Trans Union or Experian, even though the calculations used to determine those scores differ.

A computer-generated score is developed by gathering information from an individual's credit report, such as the amount of money owed and whether or not payments have been made on time. That score is then compared to the credit performance of consumers with like profiles. The scoring system awards points for each factor that helps predict who is most likely to repay a debt. A total number of points, called a credit score, helps predict the likelihood that you will repay a loan and make payments on time.

Credit scores range from 375 to 900 points, but are only meaningful and useful within the context of a particular lender's own cutoff points and underwriting guidelines.

Generally, you are likely to be considered a better credit risk if your FICO score is high. Under mortgage lending guidelines, for example, a score of 650 would indicate that you are a worthwhile credit risk.  People with these scores usually get credit quick and easy, and will have a easier time obtaining it on favorable terms.

Scores between 620 and 650 (average FICO scores fall into this range) indicate fair credit, but also suggest to lenders that they should take precaution with the potential borrower and assess any particular credit risks before extending a large loan or high credit limit. People with scores in this range do not have a very difficult time obtaining credit at a good rate, but they may have to provide additional documentation and explanations to the lender before a large loan is approved. This means that their loan closing may take longer.

A score below 620 may prevent a borrower from getting the best interest rates, as they may be considered a greater credit risk-but it does not mean that credit will evade them. The process will probably take longer and, as noted, the terms may be less appealing, but often credit is still attainable.

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In fact, you most likely have already put your credit to good use for you. You used it just by obtaining an auto or student loan, using your credit card to pay for a trip or new suit, or by being chosen as the tenant for your rented apartment or house. A stable history of paying your bills may also have helped you land your job, as well!

But even if you use your credit every day, you may still have many questions concerning the credit industry and its relation to you. Credit is very complex and, as a credit-active consumer, you need to know how credit reporting works and what your credit report contains.

What Is A Credit Bureau?
A credit bureau or credit reporting agency gathers, maintains, and sells information about consumers' credit histories. It collects information about consumers' payment habits from credit grantors like banks, savings and loans, credit unions, finance companies, and retailers. The credit bureau compiles this information in a computer database and sells it to credit grantors as a credit report. When you apply for a new credit card or loan, the credit grantor orders your credit report from at least one credit bureau (sometimes all three) and assesses the information to decide whether to grant you credit. The credit grantor pays a fee to the credit bureau for every credit report sold.

Although credit-reporting agencies make available your credit report to lenders when you apply for credit, they do not make actual lending decisions. The individual lenders must evaluate your credit report and any other factors they consider important and then decide whether or not to extend you credit.

The Three Consumer Credit Bureaus
There are three major nationwide credit bureaus: Equifax, Experian, and Trans Union. Although many national lending institutions report consumer credit information to all three, smaller banks and other credit grantors may report to only one-or even none. Therefore, your credit report from one bureau is not the same as one from another.

What Exactly Is a Credit Report?
A consumer credit report is a factual record of an individual's credit payment history. Credit grantors go over your credit report to objectively decide whether or not to grant you credit. There are 190 million credit active people in the United States who have at least one type of bill to pay. As those people pay their bills, most lenders report credit payment information to the bureaus. Therefore, the information in your consumer credit report comes directly from the companies you do business with.

What Information Does A Credit Report Contain?
A consumer credit report consists of four types of information: identifying information, credit information, public record information, and inquiries.

Identifying information includes:

• Your name
• Your current and previous addresses
• Your Social Security number
• Your birth year
• Your current and previous employers
• Your spouse's name (If married)

Credit information includes credit accounts or loans you have with:

• Banks
• Retailers
• Credit card issuers
• Other lenders

Public record information includes any information that's contained in state and county court records, such as:

• Bankruptcies
• Tax liens
• Monetary judgments

Inquiries signal to other credit grantors that you have applied for new credit that could make you have additional debt. Potential lenders view many recent inquiries on your credit report as a sign that you are overextending yourself.

(A credit risk score may also be available on your report provided to a credit grantor, although it is not included on consumer review reports. Calculating and using a credit score vary widely, so a score has little meaning outside of the context of a particular lender's unique guidelines for use. So, it is not available on consumer review reports.)

What is a Credit Risk Score?
A credit risk score is a statistical summary of the information that is in a consumer's credit report. The most recognizable type of credit risk score is the Fair, Isaac (FICO) score. Complex mathematical processes calculate the score by assigning numerical values to different pieces of information in the credit report. Credit bureaus provide risk scores to credit grantors who use them to objectively evaluate an applicant's credit-worthiness. The score itself is relative and will be viewed differently by creditors depending on numerous factors, including the creditor's risk level, marketing goals, and business practices. Your risk score will change over time as you build and develop your credit history.

Does a Credit Report Contain Other, Unrelated Personal Information?
No. Your consumer credit report does not contain information about your race, religious preference, medical history, personal lifestyle, personal background, political preference or criminal record.

How Long Does Information Stay on My Credit Report?
Positive credit information remains on your report no matter what, although information about an account will cycle off your report if no new information is reported about it for seven years. (Thus, a closed account will no longer appear on your report seven years after it is reported closed by the credit grantor.)

Bankruptcies can remain on your credit report for up to 10 years. Most negative information and other public record information remain for up to 7 years.

Most inquiries stay on your credit report for up to two years.

What Is a Mortgage Report?
A mortgage report is a special credit report lenders use before deciding whether or not to extend you a home loan. Each report is developed from credit reports from two or three credit bureaus. The mortgage credit reporting company buys credit reports from the credit bureaus, merges them, and manually confirms specific information such as employment, credit account balances, and public record information.

What Is an Employment Report?
An employment report is a modified credit report aiding potential and current employers in the hiring and promoting decision-making process. The employment report contains the same billing and payment information your credit report has listed. However, your marital status, year of birth, and account numbers are omitted from the employment report.

Who May Check My Credit Report?
Federal law carefully regulates how credit reports are used and accessed. By law, you have the right to get your own reports at a reasonable price. Before they can access consumer credit information, businesses must prove that they will be using the data for reasons only allowed by the law.

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When you agree to cosign for someone else's debt, you are essentially insuring that the money will be paid even if that person defaults. You are taking a risk that a professional lender will not take. Remember: the lender would not need a cosigner if the borrower were a good risk.

Cosigning Means You Are Financially Responsible.  Consider the Risks!
You must understand the obligations associated with cosigning a loan. So before you agree to anything, the Federal Trade Commission requires the creditor to give you information explaining your commitment. It states:

"You are being asked to guarantee this debt. Think carefully before you do. If the borrower doesn't 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 part of your credit record. This notice is not the contract that makes you liable for the debt."

If you are thinking about cosigning, consider the following:

• Be sure the loan is affordable. If you're asked to pay and you can't, you could be sued or your credit rating could be damaged.
• Even if you're not needed to repay the debt, your liability for the loan may deter you from getting other credit because creditors will consider the cosigned loan as one of your obligations.
• Before pledging property to secure the loan, such as your home or car, ensure you understand all the consequences. If the borrower does not pay, you could lose these items.
• You may have to pay the full amount of the debt if the borrower does not pay. You may also have to pay late fees or collection costs as well as the outstanding debt.
  * Ask the lender to tabulate the money you may owe. You may also negotiate specific terms of your obligation.
• Ask the lender to agree, in writing, to notify you when the borrower does not pay. This 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 the important contracts.
• Check your state law for additional cosigner rights.

When Is It Worthwhile to Cosign?
When it's important to you that the borrower get credit, and you are absolutely sure the borrower will repay the debt, it can be worthwhile to cosign for a loan or credit card.

Parents often cosign for their adult children who have ample income to qualify individually, but do not have an established credit or employment history. By cosigning, parents help their children receive a loan and establish credit in their own name.

Also, the situation arises that a spouse or family member cosigns for a small loan or credit line to help an individual establish or rebuild credit in their own name.

Although the statistics on cosigning show that it's a relatively high risk, this is not always true. Statistically, though, the risk outshines the benefit. Some studies show that three out of four cosigners end up having to repay the loan for the original borrower, so it's important to protect yourself if you do cosign.

If the cosigning risks concern you, you can negotiate specific terms of your obligation. For example, you might want to have your liability limited to paying the principal balance on the loan, but not late charges, court costs, or attorney's fees. In this case, ask the lender to make a statement in the contract such as: "The cosigner will be responsible only for the principal balance on this loan at the time of default."

If You Need a Cosigner
If you need someone to cosign a loan for you, talk with family or friends, explaining to them that they'll be helping you to reestablish your credit. Accept that cosigning is a big deal for the person agreeing to sign for you, so make sure you make them feel as comfortable as possible about cosigning for you. Assure them you'll be able to repay the loan. Remember that if you do not repay the debt and the cosigner has to help and repay it but cannot afford it, then you both will have damaged credit histories. So, the credit you obtain will count as a double weight of responsibility-your obligation to the lender to repay what you borrow and your obligation to your cosigner to live up to the investment they're making in you.

Whatever your involvement in a cosigned credit transaction, remember that cosigning means extra obligations for everyone involved.  Think carefully about your decision.

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In the past few years identity fraud has risen dramatically. In this form of credit fraud, a thief steals your good credit by taking control of or opening new accounts in your name, running up large balances, and making you pay the collectors for what you never bought.

New accounts opened with your identity will appear on your credit report, revealing identity fraud to you. If you don't check over your credit report, it could be months before the credit grantor, tired of not getting paid, turns the account over to a collector who tracks you down and demands payment for a loan you've never even heard of.

As with much less problematic inaccuracies, identity fraud is something you can detect and fix most effectively simply by checking your credit history thoroughly and on a routine basis.

Become an Informed Consumer of Credit Services
Your credit report can impact your financial stability dramatically. With good credit, you can obtain many types of benefits--a home mortgage or lease on an apartment, an auto loan, low-interest credit cards, and more-with ease. But if your credit history is bad, many of these financial options will not be unavailable to you. Either way, you should know what to expect when a lender runs a credit check on you.

Besides paying your bills regularly and on time, the single most important thing you can do to ensure that when others check into your credit they'll find you to be a good risk is to be aware of what is in your credit report.

Studies have shown that many credit files contain inaccuracies that can harm your credit rating, leading to rejections when you apply for loans, insurance, even a job. Often, this can be attributed to simple human error. The causes range from a clerical error to a computer glitch in which your file is mixed with that of someone with a similar name.

That's why it's important that you check all of your credit files-and monitor your credit regularly--to protect your good credit standing, even if you always pay all your bills on time.

And if your credit is less than perfect now, checking your report will aid you in identifying lingering problems so you can deal with them effectively and move on toward an improved credit standing. Whatever your situation, though, reviewing your report on a regular basis is the only way to be sure that you will go into any credit conversations knowing everything lenders will know.

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