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Common Questions About Credit And Debt Repair.
 
Have you had enough problems going through being rejected for credit cards, loans, checking accounts? You are not alone! Over 82 million Americans can’t qualify for a loan, car, apartment, home, or credit card because of their credit problems. How do you expect to rent a car, hotel room, or make a reservation without a credit card? Over 85 million Americans are in debt so bad that over 70% of their income goes just to pay bills.

Credit In Everyday Life
A large percentage of Americans operate some pact of their lives on a credit basis. You may have a car loan or a credit card. These are credit instruments. You may have a house, the major credit purchase in most peoples lives. Even utility payments are a credit transaction because you use the utilities services before paying for them.
Since credit is so prevalent in all our lives, it is vital that we maintain a good credit rating if we want our lives to ran smoothly. While it is possible to live with no credit or even bad credit, it severely limits your options in today’s society.

How To Get Good Credit?
Given credits importance in society, how do you go about getting credit? How does your application get evaluated?
To get credit, you must make an application to a lender for credit. You fill out a form that asks for information about you, your job, your income, and sometimes your financial obligations (like the cost of rent/home mortgage, etc.). This information is analyzed by the creditor and if it is deemed positive, you are granted the credit you requested.

 

Types Of Credit
In general, there are two types of credit you can obtain; secured and unsecured. Secured credit means that the loan is secured by the merchandise purchased with that loan. For example, if you buy a car, that is a secured credit transaction because the lender can repossess the car if you do not repay the loan in a timely manner. Even credit card purchases are secured. This is because the credit card issuer can legally take back the merchandise you purchased if you default on the payments. But this is very rarely done for credit cards. The credit card issuer doesn’t want books and TVs, not to mention the meals and gas, etc. you charged on your credit card. So credit card issuers usually treat a default in the same manner as unsecured credit is treated. Unsecured credit means that you were lent money on the strength of your signature. This is usually called a signature loan. There is m specific merchandise backing the loan, just the lenders belief that you will repay the money.
The first step in getting credit is figuring out what you need it for. Are you trying to get a car, boat, credit card, or something else? Generally, if it is a major purchase, your lender (the car dealership, home mortgage lender, etc.) will help you fill out all the paperwork.
If it is just a credit card you are applying for, you must shop around on your own. Find a bank offering a low interest rate. Ask them for a copy of their application. Then fill out all the information they are asking for as accurately as you can.

How You Are Evaluated For Credit
The lender will then use this information for two things. First, the application will be used to get a copy of your credit report from one or mom credit reporting agencies. (In general, for larger loans, like a car Or house, two credit reporting agencies will be contacted and for smaller loans, like credit cards, only one credit reporting agency will be contacted). Second, your application, along with your credit report, will be used to “score” you. Creditors use a scorecard to evaluate your creditworthiness. If you score high enough and, in their eyes, can handle the additional debt load, you are granted the loan. If you score too low, you are rejected. If you are in the gray middle zone, it becomes a judgment call by the lender. If the lender feels comfortable about you, your marginal status will turn into an approval. If the lender feels uncomfortable with you, your marginal status will turn into a rejection.
Creditors like to see the following information items listed on your credit application in order of importance to them when evaluating your credit request:

• A positive, up to date credit report
• A home with a mortgage and up to date payments
• An American Express and/or Diners Club card
• A job you have had for more than one year
• An address you have resided at for at least one year which is in your name.
• A current or paid off bank loan
• A Master Card or Visa card
• A department store credit card
• A telephone/utility bill in your name

From these items and whatever additional information your lender uses, a decision will be made on whether or not to extend you credit. If you are just starting out or if you have bad credit, it becomes much tougher because you don’t score very many points on the lender’s scorecard.

 

Credit And Employment

One other surprising place you may find your credit report used is as part of an employment application. The law allows potential employers to examine your credit report as part of your employment interview process. They use the information provided in your credit report as part of their evaluation of you. Credit reports are being used by more and more companies to check out a potential employee’s “stability”. With all the job shifting going on now, this is another very vital reason to keep your credit report as healthy as possible.

 

Negative Credit

What is negative credit? How is it repaired? Negative credit is created when you do not live up to your contractual obligations. It finds its way onto your credit report in many different ways. The majority of negative items are due to fiscal missteps by you such as paying your credit card late. A much smaller but still significant number of entries comes from errors, fraud, and other abuses of the system. Lets look at each of these categories in a bit more detail.
Fiscal missteps, the most common cause of negative credit, are caused by actions often originated by you. This could be something as innocent as misplacing a bill and missing a payment as a consequence or it could be something as devastating as the loss of a job which leads to your house being foreclosed upon or you needing to declare bankruptcy. Anything you do which generates a late payment or causes a collection action to be taken against you will probably show up as a negative item in at least one credit reporting agencies report on you.
Errors can be caused in many ways. A loan payment is made on time but the bank made an error when they credited it. Or perhaps a credit reporting agency entered incorrect information on your credit report. These are both examples of the types of errors that may occur.
Fraud occurs whenever someone else uses your social security number on a credit application. By doing this, the lender is accessing your credit report and will make a decision based upon it. If the person doing this is committing fraud, that person will use that credit card until it is frill and then walk away from it. When the bank doesn’t get paid, it reports to the credit reporting agencies that you are in default and you now have a negative credit entry through no fault of your own.
Abuses are a subset of fiscal missteps. Basically abuses are usually credit card abuses. Some people have trouble controlling their spending and soon find that they have $20,000 or more in credit card debt and not enough money to cover the bills. These abuses generally end in bankruptcy and destroy a person’s credit rating for a very long time.
The good news is that no matter which combination of the above problems faces you there are solutions. You can definitely remove 100% of all efforts and frauds with a few letters. Any you will find that many of your personal problems can also be removed fairly easily. And, if you are not 100% successful, there are always simple ways to rebuild your credit in a reasonably short period of time.

 

Protecting Your Credit

Given the turbulent nature of the economy where losing a job is a very real possibility, what can you do to further protect yourself The best way is to build a sizable nest egg to ride out the bumps that may get put in your path. But, that is hard for many people to do.
It is not the purpose of this article to discuss this matter in detail. There are many excellent personal financial management books on the bookshelves that deal with this situation.
If you ever get laid off or otherwise find your source of income has dried up, contact everyone to whom you make payments. I mean everyone! Call your credit card companies, the bank with your car loan, the bank with your home mortgage, your utility and phone company, etc. Talk to the credit manager or equivalent person at each place. Explain your situation and ask if you can skip a few payments.
You may state something like “I just was laid off from my job and don’t have an income. Its going to take some time for inc to get a new job and get back on my feet. Is there my way I can skip a few payments until I get that new job and can start paying you again?”
After this, let the lender talk. He or she will discuss options with you. Some will not be able to give you any bargaining room while others may give you a 1-6 month grace period from payments. You don’t know what you can get until you ask.
After calling them all, you now know what bills you have to pay and what ones can wait for several months. If your unemployment and savings can cover the “must pay” bills, your credit rating will stay healthy. And, if you find that replacement job in time, your good credit rating is preserved, just as though there were no financial crunch.
With this disaster planning and a bit of luck in the job market, you will get through these troubles with your good credit intact. And, if things don’t work out well and it takes a bit longer than expected to get back to work, this method will at least minimize the damage done to your credit rating. And this will make the subsequent cleanup of your credit report much easier to accomplish.

 

Building and Re-building Your Credit

When a lender extends credit, several elements of your credit life are examined before making a decision. Before discussing methods of obtaining credit, I want to take a moment to explain many of the things of importance to creditors. It will give you a better understanding of how they evaluate your creditworthiness
A creditor scores you based on your credit and job history as well as your income and current debt/payment load. Owning a house is worth points, having a credit card is worth positive points, having bad credit is worth negative points, etc. If you have a high enough positive score, you get the loan. If not you are rejected. If you are in the gray area in between, the impression you make with the lender is often the deciding factor between acceptance and rejection.
Just to give you an idea of the relative importance of the various items a lender uses to score you, the following list is presented, Items represent the most important to least important on your loan approval score card.

1. A positive up-to-date credit report.
2. A house with a mortgage.
3. An American Express or Diners Club card.
4. A job you have held for mom than one year.
5. A current or paid off bank loan.
6. A place where you have lived for more than one year.
7. A Master Card or Visa card.
8. A department store credit card.
9. A telephone in your name.

By examining each of these items, you will get an idea of how a lender perceives you. If you rank highly, it is very easy to get a loan (assuming your debt load is acceptable to them). If you rank poorly or have none of the above items, it is more difficult.
There are a variety of ways to build a positive credit rating. Although there are many similarities in both sets of techniques, there are enough differences that each has been given its own section.

 

Establishing credit for the First time.

Around the time of getting your first job or perhaps before then, you may be thinking of getting that first credit card or first car loan. Or perhaps you have lived your life on a cash basis and now want to expand your lifestyle beyond what you can afford out of your normal cash flow. In either case, this can be a difficult time. ‘The lending institution has no easy way of evaluating your creditworthiness. So, how do you get credit if you don’t already have credit? There are many easy techniques you can follow to get credit issued and get that first important credit entry on your credit report.
First, lets discuss how a lender will evaluate you. The lender uses a scoring system that is used to evaluate the creditworthiness of any applicant. Lets take a look at the scoring system as it applies to you.
In describing this, we assume you have no entries in your credit report at this time and you do not have a co- signer on your loan credit application. In this case, the creditor will look at the following items in making a decision:

• Your income
• How long you have been at your job
• How long you have had a bank account
• The typical balance of your bank account
• How long you have been at your current address
• Whether or not a telephone and utilities are in your name

[NOTE: If you apply in person, a neat appearance and good manners can go a long way towards approving a marginally acceptable application]
From these items, the creditor evaluates you. If the creditor feels you are an acceptable risk for the amount of money you are requesting, you will he granted the loan.
If you use a co-signer, the situation is very different because the credit rating of the other person is used to evaluate the loan. If you make enough money to service the loan, and the other person has good credit, you will very likely get the loan. Co- signers are usually parents helping their children when they are in college or just starting in the workplace or a husband and wife going to buy a house or car.
A new wrinkle in easy credit that has come about in recent years has been banks soliciting college students to increase their credit card business. The assumption they operate under is that a college student has good prospects for a high paying job upon graduation. The (future) diploma has a cash value to the bank that they decided was good enough to make these people worthy credit risks. Given that it is possible to get that important first bit of credit, what are some techniques that can be used to get it? Some techniques are:

• Get a Co-signed loan
• Get a local department store credit card national department store credit card Visa/MasterCard Card
• Get a American Express/Diners Club automobile loan home loan
• Get a local furniture/appliance store collateral loan secured credit card collateral loan signature loan
• Each of these items is described in detail below with suggested strategies to improve your chance of qualifying.

 

Co-signed Loan

Getting a Co-signer for a loan or credit card is an excellent way to get established in the world of credit. Often, when you are just starting out in the world of credit, you are not yet established. You haven’t been on the job long enough or you haven’t lived in one place long enough. This is a very common situation among young adults just finishing school and getting started on their own. A Co-signer, usually a parent, is basically telling the lender that he or she will stand behind the applicants ability to pay for the loan.
The downside of this method is that if you, the applicant, do not pay the loan in a timely manner, the lender will go after the co-signer for payment. The upside is that the loan is evaluated on the basis of the co-signer as well m the applicant. If the co-signer is a good credit risk in the eyes of the lender, the credit will be granted 99% of the time.

 

Local/department store credit card

Many mom and pop type stores offer credit cards that can be used for merchandise in their stores only. They are willing to do this because it generates extra profits for them. Normal credit card purchases on Visa, etc. cost local merchants approximately 1.5% of the purchase price of the merchandise. By giving out their own credit card, they again get full price for their merchandise plus they collect interest on the money they lend to you at a very high rate (18%). Because of these two reasons, mom and pop stores have a strong incentive to get people to use their store credit card rather than a Master Card or Visa.
How does that help you? You can use their desire to have you as a customer as leverage to get that credit card. The very best way to get one issued if you have no credit is to couple it with a major purchase, assuming you need something relatively expensive (in the range of several hundred dollars) at this store. You basically approach the owner or store manager with your filled out application and express your desire to get issued their credit card so that you can buy item X. If the store operates on commission, let the floor salesman for that department work for you.
He will do all he can to get that credit card accepted so he can get his commission. It is possible you would have been approved without all the extra steps. And it is possible you may get rejected if you follow all these steps but most of the time, the personal touch described here will work wonders for you.

 

National Department Store credit cards
National department store credit cards include companies like Sears and Macys. I also include gas credit cards like Mobil in this section. National department store credit cards we a bit harder to get than local credit cards because you cannot deal with a “real person” to get your credit card. Credit card decisions are made by people and computers in the credit department of corporate headquarters for the company, not at the store where you apply. These places are generally not good places to apply for your first credit item because they generally have pretty strict guidelines. And if you are fortunate enough to get one, it will usually be for a small credit line of only a few hundred dollars initially.
About the only way to get one of these items as your first credit account is to have a co­signer or to show a stable employment and residency period for over a year. If you can’t do either one of these, I recommend you find another source for your first item of credit.

 

VISA/Master Card

As tough as national department store credit cards are to get, getting a Master Card or VISA used to be even tougher. But with growing competition and increased profits, many issuers are actively soliciting your business and are willing to overlook an empty credit report and many even overlook negative entries on your credit report. Once, the se cards were hard to get. That is no longer fine. If you have had a job for a year (and in many cases for less than a yew), you will almost automatically get one just by filling out the application. You may have to apply to a few places because some Master Card and VISA lenders still follow strict guidelines. The best applications to use are the ones that come in the mail saying you are “pre-approved”. These applications almost always result in a credit card being issued to you.

 

American Express/Diners Club

American Express and Diners Club and similar credit cards are what I call high end or luxury credit cards. ‘These cards require the balance to be paid off every month. If you charge $100 for a given month, you owe the credit card $100 for that month. If you charge $1000, you owe $1000. They do not let you carry forward balances the way MasterCard and VISA, etc. do.
Because of this requirement, these types of cards are generally very difficult to obtain. The issuers need to be convinced you can pay off your charges each month. That is something difficult to prove if you have no credit history or have a low paying job.
Although it is possible to get one of these as your first credit card, it is very likely you will be rejected. Because of this, we strongly advise against trying to start your credit history with one of these cards.

 

Car loans

Car loans are a great way to establish your first entry in your credit file. If you make enough money for the car you want to buy, you will get the loan. The only way to get rejected is if you buy too much car for the money (i.e. trying to buy a $20,000 car when you only earn $1 000/month). These loans are easy to get because the loan is backed by the value of your car. If you don’t make your payments, they repossess the car. putting down some cash with the deal will be a definite help in getting that car loan, especially when you are buying a mom expensive car. Dealerships are so willing to work with someone who has no credit, they even have special programs for first time car buyers.
The one warning we give here is that many dealerships offer a buy here/pay here finance program. The program is good. It helps dealerships sell cars and it helps people buy cars. But as someone who is trying to establish credit, you need to ask a question before using a buy here/pay here option. Ask the dealership if this transaction is reported to the credit( bureaus. If it is. go ahead and make the deal. If it is no(, you may want to look around a bit more first. After all, one of your goals is to establish a credit file on yourself If the car dealership doesn’t report the transaction to a credit bureau, this goal will not be achieved.

 

House loan

A home loan is one of those types of loans that have so many variables, no universal statements can be made about them. If you approach a bank and say “I want a house loan and I want to put a 40% down payment on it”, you will get the loan regardless of any other factors. In fact, they will roll out the red carpet for you. However, if you are like most of us and only able to put 10% or so down, it becomes a bit tougher.
A home loan can be your first credit entry and if you have always lived on a cash basis before this, it may well be. If, in the bank’s eyes, you are a good credit risk, you will get the loan. A good credit risk to them in these circumstances is someone with a stable (preferably growing) bank account, a stable, long term job, and a long term residence, preferably in your name.
If you don’t have these things, it is going to be very difficult to get that loan. If your goal is to buy a house and you have the time, I strongly recommend that you use some of the other techniques in this chapter to build up a credit rating before trying to get a house. If not, talk to several lenders. Present your case and see if one is able to work with you. Or, get someone willing to co-sign the loan and then in a year or so, get the loan reassigned to you.
Another option is to find a home with an assumable non-qualifying loan that you can assume. For about $50, anyone can assume the loan, regardless of job or credit history. And best of all, it is looked at the same as if you received a new loan by the credit reporting agency and future creditors.

 

Local Furniture/Appliance store collateral loan

This is a variation of the local department store credit card discussed above. The main difference is that this is an actual loan for the price of the purchase, not a credit card. The loan is very easy to get because it is backed by the collateral and the strong desire on the store’s pan to make a sale. If you have a job and can afford the payments, you are almost guaranteed to get this type of loan.

 

 

Secured Credit Card

If you have some extra cash and want the convenience of a credit card but cannot get one, consider a secured credit card. It can serve many useful purposes. First, what is a secured credit card’? A secured credit card is really a debit card. That means if you open a secured credit card account with $1000, you now have a credit card with a $1000 debit line of credit. This means you can charge up to $1000 in merchandise before putting mom money into it.
You may be saying “Why not just pay cash for my purchases?”. Remember, your goal is to establish a credit rating. To the credit world, a secured credit card is the same as a real credit card. They don’t know your purchases have already been paid for. All they see on the credit reports is that you have a credit card and a good payment history. This is an excellent first step to getting other types of credit. The only drawback to a secured credit card is that the annual fee is a bit higher than a normal credit card charges.

 

Collateral Loan

A collateral loan is a loan secured by an item or items of value. For instance, if you have $100,000 in jewelry in a safety deposit box, the bank will be willing to give you a loan for a portion of the value of the jewelry. During the loan repayment period, you would not have access to your jewelry. The bank would be holding it as collateral against repayment of the loan. That is a drawback only if you need constant access to the merchandise.
If you don’t need frequent access, this is a great way to get a loan. Since it is backed by something of value, you have a very high probability of being approved for the loan.

 

Signature Loan

Signature loans are difficult to get because they are not secured by a house, car, or my other item of value. Basically, a signature loan means a bank is giving you money based on their perception of your credit history. Because you have none at this point, this is a very difficult type of loan to get. If you have done business with the same bank for a long period of time and keep a decent balance in your account at that bank, you have a chance of getting a signature loan from them.
In general, we would strongly recommend using another means of obtaining credit. This type of loan is not very friendly to first time applicants.
These are many of the common sources for getting your first loan and first credit entry. With a little effort, you will soon have your first credit card, car loan, etc. Just choose what makes sense given your current needs and use the easiest way possible to secure your credit. Once you get this first item, you are on your way. After this, future items will be much easier to get.

 

Re-establishing Your Credit Rating

After following all the steps outlined on how to repair your credit report, you may find you could not get every negative item off of it. You may still be a person with bad credit, a poor credit risk.
Don’t despair. There are many simple techniques you can use to rebuild your credit. These techniques will slowly establish you as a good credit risk even with those negative items on your credit report. The first step is to write a letter to the credit bureau to be placed in your credit report, This letter explains why these negative items are there. This letter is explained much mom fully in the chapter on the credit repair process.
The second step is to take an inventory of where you are today. What do you have to work with? What are your strengths; weaknesses? The third step is to take positive steps to rebuild your credit history by getting new credit items in your credit report. Both steps two and three are expanded upon below.
Taking an inventory of where you are today is a relatively simple process. Make a list of every credit item you have; car loan, credit cards, house loan, etc.. This is your credit inventory. Each of these items can work for you to improve your credit health. If you have credit cards but do not use them, begin to do so. Potential creditors like to see credit cards being used. It shows them you make your payments on time.
NOTE: This inventory is very important to you. Part of getting and keeping a healthy credit report and credit life is to make timely payments. It is very important that you keep payments on all these obligations current. The third step, taking positive steps to rebuild your credit, can he handled in many ways, from very passively to very aggressively. Lets look at a few cases.
Case 1: You just went through a divorce and had your credit rating mined. Your credit inventory after the divorce was pretty good. You have a house with a mortgage, a new cut with a car loan, and two credit cards. You also have a job that lets you support these loans and live a comfortable life.
In this scenario, you might not have a need for any new credit for several years. If during this time, you keep your payments current, it is very likely that you will be granted the new credit on the basis of your current payments on your preexisting loans. In this example, time is doing the work for you. You need do nothing except live your life as you normally do.

Case 2: You just had a bankruptcy. You lost your house and your car. Your credit card accounts were all canceled. You were lucky enough to find an apartment that didn’t do a credit check.
Lets take a look at your credit inventory. You have a job. Lets assume the bankruptcy taught you some lessons in financial frugality and you are able to save some money each month.
The first thing you need is a car. Look in your newspapers for dealerships willing to work with bad credit risks. Make a list and call them to see which ones report their loan information to credit reporting agencies. Go to one of them and buy a car. Do not be surprised when they charge you a higher than normal rate of interest. This is to compensate them for the added risk of the loan they me making.
This is step 1.
Step two is to somehow come up with approximately $1 000$2000 in a bank account, When you do that, go to the bank loan officer and tell him you want to borrow the amount in the account and leave it as collateral (i.e. if you have $1500 in your account, you want to borrow $1500 and leave the money in your account as collateral against repayment).
If they ask you why you want to do this, be honest. Tell them you are trying to rebuild your credit rating. You will get the loan because it is 100% covered by the money in your bank account. If you default on the loan (which you will not do), the bank will claim the money in your account as payment.
[NOTE: Some people recommend that you take the loan money, deposit it in another bank and repeat this process over and over again in a matter of days. This is not really necessary and it can be very confusing to you, and possibly illegal.]
A better approach than the above note, if you have the time, is to repay this loan in two monthly payments and then repeat the process at the same bank, trying to borrow a larger amount each time.
At the same time as you are doing the above, get a secured credit cad and use it, Don’t worry about how high a credit limit you get on it. It is not important,
After six months, your credit inventory looks much better. You have a car with a loan, a current credit card, and several progressively larger bank loans. All loans are being paid in a timely manner or are actually paid off.
At this point, you are ready and able to get a regular credit card. You may have to apply to a few places to get one but you will shortly be issued one.
From this point, you are again legitimate and don’t need to do any “tricks” to get loans, etc..
The only type of loan that would be tricky to get at this point would be a house loan. If you “need” a house quickly, I strongly recommend finding a non-qualifying assumable mortgage to assume unless you have enough cash for a 20% down payment. If you have that much cash, you will be able to find a lender willing to give you a loan.
This is a brief analysis of two extremes. It is wry likely that your own credit was place you someplace in between these two scenarios. If you haven’t read it yet, mad the preceding section on establishing credit for the first time for mom ideas different techniques to use to secure additional credit.
The key things to remember when building or rebuilding your credit are to be assertive and positive. Credit rebuilding is a numbers game. If someone wants your business bad enough, you will get credit issued to you.

 

Fiscal Responsibility

These guidelines would not be complete without a few words on fiscal responsibility. By now, you are aware that good credit is something that you must earn and protect. It is not something that is a right. We also assume that you know what it is like to have to live in this society with bad credit. It can be pretty tough.
Now you have everything you need to know to have another chance in the credit world. Use it wisely and conservatively. Leant how to manage your finances so you limit your exposure to life’s bumps. Study financial planning and use what you learn to keep yourself on a sound fiscal and credit footing. Its easy to do. It just takes a bit of knowledge and discipline. In fact, it can be summarized in this short phrase “Don’t spend more than you make! “. If you do, you will get yourself in trouble. Don’t do it!

 

Contacting Credit Bureaus

Dealing with the Credit Bureaus does not always have to be an unpleasant experience. Remember that many people are looking for a quick fix to their credit problems. Those who do usually fall prey to the many schemes that just tell you to dispute debts that are valid and hope the credit bureaus mess up along the way. We recommend a professional approach as well as an honest approach. Your goal is to work with the Credit Bureaus and reach a common goal: to ensure that the information being listed is correct. Here are the Big Three Credit Bureaus:

Experian http://www.experian.com/ National Consumer Assistance Center P0 Box 2106 Allen, TX 75013-2106 (800) 682-7654

Equifax http://www.equifax.com/ Credit Information Services. Inc. P0 Box 740241 Atlanta, GA 30374-0241 (800) 685-1111

TransUnion http://www.tuc.com/ Trans Union Consumer Relations 760 West Sproul Road, P0 Box 390 Springfield, PA 19064-0390

 

 

Glossary Of Terms:

Annual Fees - A yearly fee charged by credit grantors for the privilege of using a credit card
Annual Percentage Rate - The cost of credit at a yearly rate
Applicant - A person applying for credit privileges, employment or some other benefit.
Asset - Any thing you own that has value or use
Authorized Account User - The person authorized by the contractually responsible party to use the account
Bankruptcy - A proceeding in U.S. Federal Court that may legally release a person from repaying debts owed. The law contains several chapters which relate to different methods of relief:

• Chapter 7 - Straight Bankruptcy (total liquidation of assets)
• Chapter 11 - Business Reorganizations
• Chapter 12 - Farm Debt Bankruptcy
• Chapter 13 - Wage Earner Repayment Plan

Bankruptcy Discharged - A court order terminating bankruptcy proceedings on old debts
Bankruptcy Dismissed - A court order that denied a bankruptcy petition making the debtor still liable for all debts
Budget - A financial plan for saving and spending money
Charge Card - A card which requires payment in full upon receipt of the billing statement
Collection Account - An account which has been transferred from a routine debt, to a Collection Department of the creditor’s firm or to a separate professional debt collecting firm
Consolidation Loan - A loan usually obtained for the purpose of reducing the amount of payments of bills owed by consolidating the bills into one loan payment. The consumer pays off several bills with the proceeds from one loan and is left with one consolidated monthly payment.
Collateral - Property acceptable as security for a loan or other obligation
Consumer - Person who uses and/or buys goods and services for family or personal use
Consumer Credit Counseling Service - Organizations which help consumers find a way to repay debts through careful budgeting and management of funds. These are usually nonprofit organizations, funded by creditors. By requesting that creditors accept a longer pay-off period, the counseling services can often design a successful repayment plan
Co-Signer - Person responsible for repaying a debt if the borrower defaults
Credit - A trust or a promise to pay later for goods or services purchased today
Credit Card - A rectangular piece of plastic used instead of cash or checks authorizing payment for goods and services
Credit Grantor - Person or business furnishing consumer goods and/or services on credit
Credit History - Record of how a consumer has paid credit accounts in the past, used as a guide to determine whether the consumer is likely to pay accounts on time in the future
Credit Limit - The maximum amount of money which can be charged on a particular credit account
Credit Repair Companies - Individuals or Companies that promise to “clean-up” or “erase” a consumer’s bad credit and give him/her a fresh start. Also know as Credit Clinics
Credit Report - A record or file to a prospective lender or employer on the credit standing of a prospective borrower, used to help determine credit worthiness
Credit Reporting Agency - A company which gathers, files and sells information to creditors and/or employers to facilitate their decisions to extend credit or to hire
Debit Card - Purchases are deducted directly from the consumer’s personal checking account
Equal Credit Opportunity Act (ECOA) - A federal law that requires lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status, or receipt of income from public assistance programs
Equifax - One of the three major credit reporting agencies, headquartered in Atlanta, Georgia
Experian - One of the three major credit reporting agencies, formerly known as TRW
Fair Credit Reporting Act - A federal law, established in 1971, and revised in 1997, which enables consumers to learn what information Credit Reporting Agencies have on file about them, and to dispute inaccurate data in the file. It also establishes specific permissible purposes for which credit reports may be requested, and places time limits on how long adverse information may be reported
Garnishment - Legal process whereby a creditor has obtained judgment on a debt may obtain full or partial payment by seizure of a portion of a debtor’s assets (wages, bank account, etc.)
Grace Period - The period allowed to avoid any finance charges by paying off the balance in full before the due date
Home Equity Loan - A loan based on the difference of the amount of equity paid on a home, and the home’s current market value
Installment Loan - A credit account in which the amount of the payment and the number of payments are predetermined or fixed
Interest - The cost of borrowing or lending money, usually a percentage of the amount borrowed or loaned
Judgment - The official court decision of an action or suit. This public record may be listed on a credit report in matters of money and debts owed
Lease - A written document containing the conditions under which the possession and use of real and/or personal property are given by the owner to another for a stated period and for a stated consideration
Lien - A legal hold or claim of one person on the property of another as security for a debt or charge. The right given by law to satisfy debt. (A lien must be paid and released)
Mortgage - A lien or claim against real property given by the buyer to the lender as security for money borrowed.

• 1st Mortgage-Also known as the “primary” mortgage-has priority over the claims of subsequent lenders for the same property.
• 2nd Mortgage-Also know as the “secondary” mortgage-is a loan secured by mortgage or trust deed, which lien is “junior” to another mortgage or trust

Permissible Purposes - As defined in section 604 of the Fair Credit Reporting Act, only the named reasons for requesting a credit report are deemed “permissible”. Requests not meeting these criteria must be denied
Personal Line of Credit - The maximum amount one can owe at any time, based on income, debt and credit history
Personal Loan - A loan based on a consumer’s income, debt and credit history
Principal - The outstanding balance of a loan, exclusive of interest and other charges
Public Record - Information obtained by the Credit Reporting Agency from court records, such as liens, bankruptcy filings and judgments. Public records are open to any person who requests them
Repossession - Forced, or voluntary surrender of merchandise as a result of the customer’s failure to pay as promised. There are several types and descriptions of repossession actions
Revolving Account - An account which requires at least a specified minimum payment each month plus a service charge on the balance. As the balance declines, the amount of the service charge, or interest, also declines
Secured Credit Card - A credit card secured by a savings account that has been established in advance by the borrower. The amount in the account usually determines the limit on the credit card. These accounts present no real risk factor for creditors and are therefore much easier to obtain
Smart Card - An electronic prepaid cash card, usually sold at banks and exchanged at face value
Trans Union - One of the three major Credit Reporting Agencies that keep records of your credit report

Also known as F.A.C.T. Act or FACTA
Link to the document on the Government Site:
http://www.treasury.gov/offices/domestic-finance/financial-institution/cip/pdf/fact-act.pdf

For those who don't like to read, here is a Summarization of the FACTA on Wikipedia:

http://en.wikipedia.org/wiki/Fair_and_Accurate_Credit_Transactions_Act

Link to Federal Trade Commission Site:
http://www.ftc.gov/os/statutes/fcradoc.pdf

For those who don't like to read, here is a Summarization of the FCRA on Wikipedia:
http://en.wikipedia.org/wiki/Fair_Credit_Reporting_Act

Also called (F.D.C.P. Act or FDCPA)
Link to government site for FDCPA:
http://www.ftc.gov/os/statutes/fdcpa/fdcpact.htm

Summarization of FDCPA on Wikipedia:
http://en.wikipedia.org/wiki/Fair_Debt_Collection_Practices_Act

Source: http://www.federalreserve.gov/newsevents/testimony/Braunstein20070619a.htm

Testimony

Sandra F. Braunstein, Director, Division of Consumer and Community Affairs Consumer credit reports Committee on Financial Services, U.S. House of Representatives June 19, 2007

pay special attention to highlighted information in green throughout article
Chairman Frank, Ranking Member Bachus, and members of the Committee, I appreciate the opportunity to appear today to discuss the accuracy of credit reports and the rules pertaining to furnishers of information to consumer reporting agencies ("furnisher rules") required under the Fair and Accurate Credit Transactions Act of 2003 (FACT Act), which amended the Fair Credit Reporting Act (FCRA).

 

Introduction

The accuracy of credit reports is vital because inaccuracies in credit reports can result in a consumer being denied credit or paying higher rates for credit. Inaccurate information can be introduced into credit reports by a variety of means, including mistakes in public records or data processing errors made by furnishers in connection with the information they provide. Other causes are the reporting of fraudulent accounts opened as a result of identity theft, the mixing or commingling of the files of consumers who have similar names or Social Security numbers, or data processing errors made by consumer reporting agencies in connection with the information they receive. Also, information that is correct at the time it is furnished is sometimes not updated in a timely manner. Furnishers and consumer reporting agencies share responsibility for ensuring the accuracy of credit reports.

Prior to the FACT Act, the FCRA imposed duties on both consumer reporting agencies and furnishers with regard to the accuracy of information in credit reports. The FCRA's existing dispute process allows consumers to contact consumer reporting agencies to dispute the accuracy of credit report information, and it requires a furnisher to assist in an investigation and correct any errors in the information furnished.

Congress adopted the FACT Act in 2003 to enhance the accuracy of credit reports and improve the dispute process. Among other things, the FACT Act gives consumers the right to request free copies of their credit reports annually from each of the three nationwide credit bureaus. This tool makes it possible for consumers to play a more active role in ensuring the accuracy of their own credit reports.

Several other provisions focus on the specific duties of furnishers to ensure the accuracy of the information they report to consumer reporting agencies and to strengthen the dispute process. Under section 312 of the FACT Act, the federal banking agencies1 the National Credit Union Administration (NCUA), and the Federal Trade Commission (FTC) (collectively "the agencies") must establish guidelines for use by furnishers to ensure the accuracy and integrity of the consumer information they report to a consumer reporting agency, and they must write regulations requiring furnishers to adopt reasonable policies and procedures to implement the guidelines. In addition, section 312 requires the agencies to identify the circumstances when a furnisher must investigate a consumer's dispute about the accuracy of credit report information based on a complaint that comes to the furnisher directly from the consumer, rather than through a consumer reporting agency. The FACT Act also required the Board to issue a model notice for creditors' use when notifying consumers about the furnishing of negative information to credit bureaus, which the Board published in final form in June 2004. Finally, the FACT Act requires certain studies relating to the accuracy of credit report information and the dispute process. The Board and the FTC jointly submitted a report to Congress in August 2006 regarding the dispute process study. The accuracy study was assigned to the FTC.
The interagency rulemakings to develop the furnisher accuracy and integrity guidelines and direct dispute rules have not yet been completed. An advance notice of proposed rulemaking (ANPR) relating to these interagency rules was published in March 2006. The agencies are currently working to develop a proposal.

 
Consumer Reporting in the United States

The consumer reporting system in the United States is based largely on the voluntary submission of information by creditors and others to three major nationwide consumer reporting agencies or credit bureaus--Equifax, Experian, and TransUnion. These credit bureaus collect information about consumers and sell the information in their files to creditors and others who have a permissible purpose under the FCRA to obtain and use the information. The databases of the three nationwide credit bureaus contain detailed information that is widely used to determine whether to grant consumers credit or insurance or whether to offer employment, rental housing, or other products and services to consumers, as well as the terms that may be offered to consumers.

The credit reporting system also includes a number of smaller consumer reporting agencies that operate on a regional or local basis. These consumer reporting agencies typically contract for the right to house some or all of the consumer data that they own on the computer systems of one of the major credit bureaus. Some consumer reporting agencies specialize by collecting and maintaining data pertaining only to certain topics, such as employment history, residential or tenant history, medical records or payments, check writing histories, or insurance claims. The credit reporting business also includes "resellers" that buy consumer reports from one or more credit bureaus, add value to the consumer report (for example, by merging files from multiple credit bureaus), and resell to users who have a permissible purpose. For example, some resellers specialize in selling merged-file reports to mortgage lenders.

Much of the information that consumer reporting agencies collect, maintain, and sell is furnished voluntarily by banks, credit unions, finance companies, insurance companies, doctors and hospitals, debt collectors, and landlords. However, as there is no requirement to furnish consumer information to consumer reporting agencies and since furnishers incur costs and obligations by participating in the credit reporting system, some potential furnishers decide not to submit consumer data to consumer reporting agencies. Moreover, not all furnishers provide the same type of information. Many report full account payment information to consumer reporting agencies (positive information when an account is current and negative information when an account is delinquent), but some report only negative information. This is particularly true for accounts related to medical, telecommunications, and utility debts. Some credit card issuers do not furnish data on consumers' credit limits. Finally, some furnishers provide information to only one or two of the nationwide credit bureaus, while others may report only to one of the specialized consumer reporting agencies.


The Importance of Accuracy in Consumer Reports

Because credit reports are used to determine whether, and on what terms, consumers may obtain credit and other important products and services, it is essential that the substantive information included in those reports is accurate. Given the range of ways in which inaccuracies can be introduced into credit reports, the issue of data accuracy is of interest to lawmakers, regulators, and others. A number of studies have examined the accuracy of credit report information. Two studies were undertaken by Board staff 2 and another was undertaken jointly by the Consumer Federation of America and the National Credit Reporting Association.3 In addition, the FTC, as directed by Congress in the FACT Act, is undertaking a long-term study of the accuracy and completeness of information contained in credit reports and of potential methods for improving accuracy and completeness.4

The findings of the studies vary and do not purport to be exhaustive or conclusive, but they do suggest a number of ways in which furnishers may contribute to inaccurate credit report information. For example, the studies conducted by Board staff suggest that some furnishers may not update account information, such as when an account is closed or transferred. Furnishers also may report inaccurate, incomplete, or duplicative information regarding accounts in collection.5

Of course, not all inaccuracies in credit reports adversely impact the credit scores of consumers. The 2004 Board staff study suggested that inaccuracies such as the failure to report the closure of an account may have little, if any, impact on consumers' credit scores. Inaccuracies related to collection accounts, on the other hand, may lower a consumer's credit score and potentially decrease credit availability or increase the cost of credit for affected consumers. The same study suggested that inaccuracies may have a greater impact on consumers who have only limited information in their credit reports. For these consumers, who are likely to be new to the credit system or have very little credit, inaccuracies can have a more significant impact because they represent a larger proportion of the available data.
Current Legal Requirements, Board Enforcement, and Industry Practices

Existing FCRA Responsibilities of Furnishers
Recognizing the importance of data accuracy in credit reports, Congress imposed requirements on furnishers in the FCRA, as amended by the FACT Act, to ensure the accuracy of the data that are furnished to consumer reporting agencies and to require furnishers to investigate disputes about accuracy when notified by a consumer reporting agency about a dispute.

Under the FCRA, a person may not furnish information about a consumer to any consumer reporting agency if the person knows or has reasonable cause to believe that the information is inaccurate. However, the FCRA provides that this standard does not apply to a furnisher that clearly and conspicuously provides consumers with an address for submitting notices of dispute. Nevertheless, if a consumer sends a dispute to that address challenging the accuracy of any information the furnisher has provided to a consumer reporting agency about the consumer, and the information is, in fact, inaccurate, the furnisher must not report the incorrect information to any consumer reporting agency in the future.

In addition, the FCRA generally imposes the following obligations on furnishers that regularly and in the ordinary course of business furnish information to one or more consumer reporting agencies:

• Duty to correct and update information. If the furnisher determines that the information it has reported is not complete or accurate, it must promptly notify, and provide corrected or updated information to, any consumer reporting agency to which it has reported the information, and refrain from subsequently reporting the incomplete or inaccurate information;
• Duty to provide notice of a dispute. If the furnisher continues to report information that the consumer has disputed, such as information it furnishes when an ongoing investigation is not yet complete, it must notify the consumer reporting agency of the dispute when reporting the information;
• Duty to provide notice of closed accounts. The furnisher must notify the consumer reporting agency about the voluntary closure of accounts by the consumer; and
• Duty to provide a negative information notice. If the furnisher provides negative information about the consumer to a consumer reporting agency, it must provide a one-time notice to the consumer either prior to, or no later than thirty days after, furnishing negative information.

Moreover, the FCRA generally requires any furnisher of information to a consumer reporting agency to do the following:

• Duty to provide notice of delinquency of accounts. If the furnisher provides information to a consumer reporting agency regarding delinquent accounts placed for collection or charged off, it must notify the consumer reporting agency of the date of delinquency on the account; and
• Duty to stop furnishing information relating to identity theft. A furnisher must have in place reasonable procedures to prevent the refurnishing of information that has been blocked by a consumer reporting agency as resulting from identity theft. These procedures must be implemented upon receipt of notification of the block from a consumer reporting agency. A furnisher is also prohibited from reporting information to a consumer reporting agency if a consumer has submitted an identity theft report to the furnisher stating that the information reported is the result of identity theft, unless the furnisher subsequently learns that the information is correct.

 
Existing FCRA Dispute Process

The FCRA establishes a comprehensive dispute process that allows a consumer to dispute the accuracy or completeness of information in the consumer's credit file with the consumer reporting agency that maintains the file. When the consumer reporting agency receives such a dispute, it must notify the furnisher. Both the furnisher and the consumer reporting agency have responsibilities under the FCRA for investigating and resolving the dispute.
Duties of the Consumer Reporting Agency. If a consumer disputes the accuracy or completeness of any information in the consumer's file, the consumer reporting agency must:

• Conduct a reasonable investigation (referred to as a "reinvestigation" in the FCRA), free of charge, to determine whether the disputed information is inaccurate, and complete the investigation generally within thirty days after receiving the notice of dispute from the consumer;
• Review and consider all relevant information submitted by the consumer in conducting the investigation;
• Notify any furnisher that provided any information in dispute within five business days after receiving a notice of dispute from the consumer;
• Provide to the furnisher with the notice all relevant information received from the consumer;
• Delete or modify information that is found to be inaccurate or incomplete as a result of the investigation, and notify the furnisher of that information of the deletion or modification; and
• Notify the consumer of the results of the investigation within five business days after completion of the investigation.

Duties of the Furnisher. Once a furnisher has been notified by a consumer reporting agency that information it furnished has been disputed by a consumer, the furnisher must:

• Conduct an investigation with respect to the disputed information;
• Review all relevant information provided by the consumer reporting agency;
• Report the results of the investigation to the consumer reporting agency;
• If the investigation finds that the information is incomplete or inaccurate, report corrected information to all nationwide consumer reporting agencies to which the information was furnished;
• Complete the foregoing steps within the thirty-day time period that the consumer reporting agency has to complete its investigation; and
• Promptly modify, delete, or permanently block the reporting to a consumer reporting agency of information disputed by a consumer that is found to be inaccurate, incomplete, or cannot be verified as a result of an investigation.

Board Oversight of Furnishers

The Federal Reserve System examines state-member banks and other entities over which it has FCRA enforcement authority for compliance with the FCRA's existing furnisher provisions. The OCC is responsible for enforcing the FCRA against national banks. The FDIC is responsible for enforcing the FCRA against state non-member banks. The OTS is responsible for enforcing the FCRA against thrifts. The NCUA is responsible for enforcing the FCRA against federal credit unions. The FTC is responsible for enforcing the FCRA against most other entities, including consumer reporting agencies, non-bank finance companies, state-chartered credit unions, utilities, retailers, and others.

State-member banks will be cited for violating the law if Reserve Bank examiners find violations of the FCRA's furnisher provisions. Between January 1, 2004, and May 1, 2007, examiners cited three banks for violations of section 623 of the FCRA. In each case, the bank failed to comply with the negative information notice requirement.

The Federal Reserve System also investigates consumer complaints against state-member banks. The Reserve Banks have cited banks for violating the FCRA based on those complaints when warranted. The Board maintains a database of consumer complaints against state-member banks. Between January 1, 2004, and May 1, 2007, the Federal Reserve System received approximately 360 consumer complaints against state-member banks relating to the furnishing of inaccurate account information to consumer reporting agencies. For most of the complaints received, there was no violation of the FCRA. Four of the consumer complaints received during this period, however, revealed violations of the FCRA and prompted the Reserve Bank to cite the bank. These violations are in addition to the three violations noted above. Thus, during the forty-month period surveyed, the Federal Reserve System cited a total of seven violations of the furnisher provisions of the FCRA, three identified during bank examinations and four resulting from consumer complaints.

In many cases in which there was no violation, the bank made an accommodation to the consumer to resolve the complaint. For example, in one case, the complaining consumer believed she had paid her account in full and closed it, but her credit report indicated that the account was delinquent. The Reserve Bank found that the consumer had paid the balance in full at one point, but found no evidence of a request to close the account. Unpaid fees continued to accrue on the account and therefore the delinquency remained on the consumer's credit report. The bank agreed to waive the unpaid fees and close the account after it learned of the complaint.
In approximately forty cases, the bank made an error and corrected the error. Of course, not every bank error constitutes a violation of the FCRA. For example, in one case, the consumer filed a complaint asserting that her credit card account was current and that the bank had erroneously reported to the credit bureau that her account was delinquent. The Reserve Bank's investigation found that the bank had not updated its files to reflect the complaining consumer's new address. Therefore, the consumer had not received periodic statements at her new address and, consequently, her account was past due. Because the bank made the error, it updated its files and instructed the credit bureaus to remove the negative information from the consumer's account history.


FACT Act Dispute Study

Compliance with Existing Dispute Responsibilities. The FACT Act required the Board and the FTC jointly to study the extent to which consumer reporting agencies and furnishers comply with the FCRA's existing requirements to investigate disputes about the accuracy of credit reports. The Board and the FTC submitted their report (Dispute Study) to Congress in August 2006.6 In preparing the Dispute Study, the Board solicited public comment about the practices of furnishers under the existing dispute process.

When a consumer reporting agency notifies a furnisher of information about receipt of a dispute from a consumer, the FCRA requires the notice to include all relevant information received from the consumer. The Dispute Study offers some insight into how the three nationwide credit bureaus typically provide information to the furnisher using a consumer dispute verification (CDV) form sent by mail or fax or an electronic automated consumer dispute verification (ACDV) form that is prepared by the credit bureau. The nature of the dispute is reflected in the form, with one or two codes (out of a total of twenty-six codes) typically used to summarize the nature of the consumer's dispute. If the credit bureau deems it necessary, a narrative summary is provided to supplement the dispute codes.

The nationwide credit bureaus typically do not forward to the furnisher documents provided by the consumer to support his or her claim. Consumer groups that provided comments to the Board and the FTC as part of the Dispute Study criticized this practice as a flaw in the current dispute process and as inconsistent with the statute's requirement for the credit bureau to provide "all relevant information" received from the consumer to the furnisher. The nationwide credit bureaus, on the other hand, have taken the position that providing to the furnisher a code that summarizes the consumer's dispute satisfies the requirement to provide "all relevant information" to the furnisher.

Direct Disputes. The Dispute Study also examined current practices of furnishers regarding disputes they receive directly from consumers about the accuracy of information reported to consumer reporting agencies. Most furnishers that commented reported that they investigate and attempt to resolve disputes received directly from consumers using procedures similar to those used for investigating disputes received through a consumer reporting agency, even though they are not currently required to do so. Some furnishers that commented reported that they provide or plan to provide a specific address or other information to enable consumers to initiate a dispute directly with them.

Enforcement Actions and Complaints. As part of the Dispute Study, several banking agencies contributed data about enforcement actions and complaints. The Board and the FDIC looked at violations of the furnisher dispute provisions by state-chartered banks and found very few violations. In addition, the Board, FDIC, and OCC surveyed their complaint databases and found only a small number of complaints alleging that furnishers failed to properly reinvestigate information disputed by consumers.

Recommendations. In the Dispute Study, the Board and the FTC did not make any recommendations for further legislative action related to the dispute process because some of the new FACT Act requirements on furnishers and consumer reporting agencies have only been implemented recently and others still need to be implemented. The Board and the FTC agreed that further legislative action would be premature.


Status of the FACT Act Rulemakings

The FACT Act amended the FCRA to enhance the ability of consumers to combat identity theft, improve the accuracy of consumer reports, restrict the use of medical information in credit eligibility determinations, and allow consumers to exercise greater control regarding the type and amount of marketing solicitations they receive. Many provisions of the FACT Act are not self-executing, but require the issuance of implementing rules before taking effect. A number of these implementing rules must be developed on an interagency basis by the Board, the other federal banking agencies, the NCUA, the FTC, and, in one instance, the Securities and Exchange Commission.

There are two reasons for the delay in completing the furnisher rules under section 312 of the FACT Act. One reason has to do with setting priorities. Given the number of rulemakings required under the FACT Act and the complexity of many of those provisions, the agencies had to set priorities. In setting priorities, the agencies were guided by two principles. The agencies gave priority to working first on those rulemakings for which Congress set a statutory deadline for completion, such as for the medical information rules. Congress set statutory deadlines for completing some, but not all, of the rulemakings, and did not set a statutory deadline for completing the interagency furnisher rulemakings. The agencies also gave priority to working on rulemakings that address areas where federal consumer protection law is less developed. For example, identity theft is a serious problem and federal consumer protections for identity theft are less developed than the consumer protections relating to furnisher responsibilities. Therefore, the agencies worked to develop the identity theft red flags provisions, which were proposed in August 2006, before turning to the furnisher rules.

A second reason has to do with the interagency process itself. On the one hand, interagency rulemakings ensure that different perspectives are considered in developing a rule and that all agencies have a say in the outcome. On the other hand, the interagency rulemaking process generally is a less efficient way to develop new regulations. Frequently, it can be challenging to achieve a consensus among the different agencies involved in an interagency rulemaking. As a result, interagency rulemakings can take considerably longer to complete than rulemakings that are assigned to a single agency. In the case of the FACT Act, these challenges are compounded by the fact that we are not dealing with a single interagency rulemaking but with multiple interagency rulemakings.

There are three rulemakings required by the FACT Act that pertain to the duties of furnishers. One of these rulemakings, which did not involve multiple agencies, was completed in 2004. The two interagency rulemakings dealing with furnishers under section 312 have not yet been completed. The status of each of these rulemakings is summarized below.


Negative Information Notice

The FACT Act requires a financial institution that furnishes negative information to a consumer reporting agency regarding credit extended to a customer to provide a notice to the customer about the furnishing of negative information. This provision applies to financial institutions that extend credit and regularly furnish information to nationwide consumer reporting agencies. For example, a financial institution must inform a customer that it has provided or may provide information about late payments, missed payments, or other defaults to credit bureaus. The statute requires the Board to prescribe a model disclosure that financial institutions may use to comply with this requirement. The Board fulfilled its statutory mandate by publishing a model disclosure in the Federal Register in June 2004, following notice and a period of public comment.


Accuracy and Integrity Guidelines

The FACT Act requires the agencies to establish and maintain guidelines for use by each furnisher regarding the accuracy and integrity of the consumer information that the furnisher provides to consumer reporting agencies. In addition, the agencies must prescribe regulations requiring furnishers to establish reasonable policies and procedures for implementing the accuracy and integrity guidelines. The agencies must consult and coordinate with one another so that, to the extent possible, the regulations published by each agency are consistent and comparable.

Developing these regulations and guidelines is a complex task. In fact, Congress instructed the agencies to take a deliberative approach in developing the accuracy and integrity guidelines by specifically directing the agencies to:

• Identify patterns, practices, and specific forms of activity that can compromise the accuracy and integrity of information furnished to consumer reporting agencies;
• Review the methods (including technological means) used to furnish consumer information to consumer reporting agencies;
• Determine whether furnishers maintain and enforce policies to assure the accuracy and integrity of information furnished to consumer reporting agencies; and
• Examine the policies and processes employed by furnishers to conduct reinvestigations and correct inaccurate consumer information that has been furnished to consumer reporting agencies.

In March 2006, the agencies took the first step in this process by publishing an ANPR regarding the interagency furnisher rules (71 Fed. Reg. 14,419 (Mar. 22, 2006)). Two purposes of the ANPR were to gather information about the four elements the agencies must consider in developing the accuracy and integrity guidelines and to seek public input regarding reasonable policies and procedures for implementing the guidelines.

Commenters on the ANPR identified certain furnisher activities that may compromise the accuracy and integrity of consumer reports. These activities include:

• Creditors failing to provide complete or accurate information to debt collectors;
• Debt collectors failing to report an account as paid-off or transferred;
• The failure to report credit limits on credit card accounts; and
• Manual processing, coding, and data entry errors.

Commenters also provided input on reasonable policies and procedures that furnishers should implement to ensure the accuracy and integrity of the information they provide to consumer reporting agencies. Suggestions included maintaining proper internal controls, training employees, conducting regular audits, using standardized reporting methods, requiring furnishers to review documents provided by the consumer, and requiring debt collectors and debt sellers to improve their practices.

One challenge in developing the accuracy and integrity guidelines is to ensure that they address only those inaccuracies introduced into credit reports by furnisher actions, rather than by the actions of other parties. For example, some commenters on the ANPR noted that inaccuracies can result from the conversion or translation of furnished data by the consumer reporting agency using proprietary algorithms, even when the furnished data is accurate. In such cases, the consumer reporting agency would be the party responsible for introducing the inaccuracy, but the guidelines will not apply to them.

Furnishers can do a number of things to improve the accuracy of the information they furnish to consumer reporting agencies. All furnishers should establish and implement policies and procedures to ensure the accuracy of the information that they furnish. Such policies and procedures may include implementing appropriate controls, training employees, and conducting regular audits of furnishing activities. As the 2003 and 2004 Board staff studies noted, the inaccurate, incomplete, or duplicative reporting of collection accounts by debt collectors is one particular area of concern. I expect these items to be addressed in the accuracy and integrity guidelines.

Furnishers, however, cannot take full responsibility for improving the accuracy of credit reports. Consumer reporting agencies need to examine their policies and procedures to ensure that they are not introducing errors into credit reports, for example, through data translation or data conversion errors or through the mixing or commingling of information about two consumers. Errors can also exist in public records, such as bankruptcy court data, that consumer reporting agencies include in credit reports. Finally, consumers now have access to free annual copies of their credit reports from each of the nationwide credit bureaus. Consumers should obtain their free annual credit reports and check them for accuracy.


Direct Dispute Regulations

The FACT Act requires the agencies jointly to prescribe regulations that identify the circumstances under which a furnisher is required to reinvestigate a dispute concerning the accuracy of information contained in a consumer report based on a direct request by the consumer. Development of this rule is also a complex task. As it did with the accuracy and integrity guidelines, Congress instructed the agencies to take a deliberative approach in developing these regulations by specifically directing the agencies to weigh the following considerations:

• The benefits to consumers balanced against the costs to furnishers and the credit reporting system;
• The impact on the overall accuracy and integrity of consumer reports of any direct dispute requirements;
• Whether direct contact by the consumer with the furnisher would likely result in the most expeditious resolution of any dispute; and
• The potential impact on the credit reporting process if credit repair organizations are able to circumvent the statute's provision excluding from the direct dispute process any dispute submitted by, on behalf of, or on a form supplied by a credit repair organization.

Another purpose of the March 2006 ANPR was to gather information with regard to each of the four considerations that the agencies must weigh when promulgating the direct dispute rules. Commenters on the ANPR had a variety of views about when furnishers should be required to investigate alleged errors in credit reports based on direct communication from the consumer.

Many industry commenters believed that there were few, if any, circumstances in which furnishers should be required to investigate direct disputes. Some believed that disputes initiated through a consumer reporting agency tend to be handled more quickly and are less prone to error. Others believed that having a single point of contact is more efficient for consumers who find multiple errors on their credit reports. Finally, others noted that furnishers are not equipped to resolve certain types of errors, such as errors involving commingled account information or mixed files.

On the other hand, some industry commenters suggested that investigations of direct disputes should be required only in connection with the most complicated types of disputes, such as those alleging fraud or identity theft. According to industry commenters, financial institutions generally investigate disputes received directly from consumers even though the FCRA currently does not require them to do so.

Consumer group commenters said that furnishers should be required to investigate direct disputes. These commenters noted that most furnishers already have obligations under other laws to investigate disputes received from consumers regarding many of their major product categories, such as credit cards and mortgages. These commenters also believed that a direct dispute rule would mitigate problems that arise when furnishers either do not receive, or receive but fail to consider, documentation provided by the consumer to the consumer reporting agency.

One challenge for the agencies in developing direct dispute rules is to determine when direct disputes would provide benefits to consumers, such as improved consumer report accuracy and expedited dispute resolution, without imposing undue costs or burdens on furnishers and the consumer reporting system. For example, a system in which consumers routinely submit duplicate disputes to both furnishers and consumer reporting agencies would likely impose undue costs and burdens on furnishers and the consumer reporting system. A complicating factor is the fact that in many cases a consumer who discovers an inaccuracy in his or her credit report may not know whether the furnisher or the consumer reporting agency caused the error.

Conclusion

Credit report accuracy is vital because inaccuracies can result in a consumer being denied credit or paying higher rates for credit. Responsibility for ensuring accuracy must be shared by furnishers and consumer reporting agencies. Consumers can also play an active role by obtaining free copies of their credit reports annually and checking them for accuracy. The existing FCRA standards that apply to furnishers regarding the accuracy of credit report information and the investigation of disputes provide meaningful protections for consumers. However, improvements to the furnisher rules can and should be made where appropriate. The Board and the Reserve Banks enforce the existing FCRA furnisher standards against state-member banks through the examination process and assist consumers in resolving complaints about the reporting of inaccurate information to consumer reporting agencies. To supplement these important consumer protections, the Board is committed to working with the other agencies to complete the interagency furnisher rulemakings as expeditiously as possible.

Footnotes

1. The federal banking agencies are the Board of Governors of the Federal Reserve System (Board), the Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency (OCC), and the Office of Thrift Supervision (OTS).
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2. Robert B. Avery, Raphael W. Bostic, Paul S. Calem, and Glenn B. Canner, An Overview of Consumer Data and Credit Reporting, Federal Reserve Bulletin, vol. 89, at 47-73 (Feb. 2003) (2003 Board staff study); Robert B. Avery, Paul S. Calem, Glenn B. Canner, and Shannon C. Mok, Credit Report Accuracy and Access to Credit, Federal Reserve Bulletin, vol. 90, at 297-322 (Summer 2004) (2004 Board staff study).
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3. Consumer Federation of America and National Credit Reporting Association, Credit Score Accuracy and Implications for Consumers (Dec. 17, 2002), at http://www.consumerfed.org/pdfs/121702CFA_NCRA_Credit_Score_Report_Final.pdf (258 KB) Return to text
4. The FTC's first and second interim reports to Congress regarding this ongoing study are available at http://www.ftc.gov/reports/FACTACT/FACT_Act_Report_2006.pdf (34 KB) and http://www.ftc.gov/reports/facta/041209factarpt.pdf (1.1 MB)
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5. 2003 Board staff study; 2004 Board staff study. Return to text
6.Report to Congress on the Fair Credit Reporting Act Dispute Process (August 2006) (hereafter "Dispute Study"). Return to text

Q. Who can request information about my credit file?
A. Under the Fair Credit Reporting Act, a credit reporting company may only disclose your credit report if someone

1. Granting credit, reviewing your account, or collecting on your account.
2. Reviewing you for employment purposes.
3. Reviewing your application for insurance.
4. Reviewing your eligibility for a license or government-related benefits.
5. Providing information for a business transaction, such as renting an apartment.
6. A court order.
7. An IRS subpoena.
8. Someone to whom you have given written permission.

Q. How often are mistakes entered into my credit file?

A. Frequently! Some experts say a significant number of credit reports contain errors! These are inaccurate, erroneous, or obsolete information that can cost you the credit you deserve.

Q. Who will remove items from my credit report?

A. Only the credit reporting agencies have the power to remove items from your credit report. But, as required by law, the credit reporting agencies must correct or remove inaccurate, erroneous, or obsolete information.

Q. How can I add positive data to my credit report?

A. Since the Fair Credit Reporting Act does not require creditors to report information about you, many do not. That means positive information may not be reported. As long as the positive information is verified, it can be added to your credit report.

 

Q. How long does the restoration process take?

A. It may take 3 to 12 months due to the credit reporting agencies’ continuing mistakes and delaying tactics.

Q. Can a hired third party demand that information be removed from a credit report which I have gotten from a merchant?

A. On your behalf, a hired third party can request that a credit reporting agency remove inaccurate, erroneous, or obsolete information from your credit report which can only be obtained by you directly from the three main credit reporting agencies. Second-hand information, such as that obtained from a merchant, is not considered a report directly obtained from one of the three main credit reporting agencies.

Q. Should I apply for credit while in the restoration process?

A. Do not apply for credit during the restoration period. Each time you apply for credit, an inquiry is recorded on your record and too many inquiries can be a cause for denial of credit.

Q. Can I speed up the process by directly contacting the credit reporting agencies?

A. No, it is best to let your hired third party communicate with the credit reporting agencies on your behalf. If you do receive a request from the credit reporting agencies, and forward any mailing directly to them.

Q. Are credit reports all the same?

A. No. Each of the three credit reporting agencies’ reports look different and may not contain the same information. The companies maintain their own databases and do not often share information.

Q. I have been refused credit. Can I do something about it?

A. Absolutely! A significant number of Americans have some “blemish” on their credit reports. Due to the nature of the credit reporting industry, those blemishes can be mistakenly included on your record. Frequently, credit reports contain inaccurate, erroneous or obsolete entries. Under the law the credit reporting companies must remove inaccurate, erroneous or obsolete information. You should check your credit report and see why you were, or may be, denied credit. You can do something to correct the mistakes and have your report corrected.

Q. Are “credit reporting agencies” a part of the government?

A. No. Credit reporting companies are just that - companies. They are in business to make money, just like the mega-billion-dollar banks that run the credit card businesses. The credit reporting business is a multi-billion dollar industry. They generate their income by selling credit reports to creditors.

Q. Is it illegal or immoral to have your credit profile improved?

A. No. It is not illegal or immoral to eliminate mistakes on your credit reports. In fact, the Federal Government, under the Fair Credit Reporting Act, Section 1681e, protects your right to do so.

Q. How does the credit reporting system work?

A. Today, the credit reporting system is literally millions of computer files about individual consumers which are maintained by the three credit reporting agencies. The files contain personal information about you - how much you owe, how you have paid your debts, your employer, your social security number, public records, etc.

Q. How does information about me get into my credit report?

A. When you agree to accept credit from a bank, most retail stores, etc., or fill out an employment application - if a credit report is used as a background check - you give the creditor the right to provide information to any credit reporting company. Additional information about you comes from public records, such as court records, debt collection companies, and even the utility companies.

 

 

Q. How do the credit reporting agencies work?

A. The banks, retail stores, utility companies, etc. report your payment record to the credit reporting companies each month. The credit reporting companies then give that information to a second tier of regional reporting companies who sell it to retailers and banks or anyone who legitimately requests information about you.

Q. Why should I care what is in my credit file?

A. You’d better care. It is your credit report that creditors use to determine if they will extend credit to you. If you have inaccurate information on your report, you may be turned down for the loan you need or pay unnecessarily high interest rates.

Q. Why do the credit reporting agencies have separate reports for husband and wife?

A. The credit reporting agencies collect information based on individual social security numbers. Only by checking both the wife’s and husband’s credit reports can we ensure accuracy.

Q. Do the credit reporting agencies own the information on your credit report?

A. No. But, you do not own the information either. It is owned by the individual merchant or creditor who put it there.

Q. Does paying a past due debt remove the debt from your credit report?

A. Paying an old debt does not erase the fact that at one time you were not paying it as you agreed, but it is possible to update your payment history.

Q. What happens if new, negative information - information that was not on my original report - is added to my report after a hired third party has begun work on my behalf?

A. This can happen, your credit is what you do. No one person can prevent you or a company you have dealings with from making an error. The training you get to show you how to spot the errors from here on. You might want to ask your hired third party to work on the information in your credit report as long as you remain a customer.

 

 

Q. Must we fill out separate Customer Agreement forms with a hired third party even though we are married?

A. Yes. Each individual must be enrolled separately.

Q. How do I get my credit reports to National Credit a hired third party?

A. You may mail them or deliver them in person. The third party can not request credit be delivered to them directly.

Q. How will! know the results following the credit reporting agencies review of my file?

A. You will be the first to know because the credit reporting agencies will write directly to you. You must them forward the third part agent you are working with.

Q. There are marketing materials that refer to the Credit Reporting Agency as being able to remove or amend items such as: bankruptcies, foreclosures, charge offs, tax liens, collections, and late or past due payments. How do they accomplish this if the item being reported did in fact happen?

A. If an item appears on someone’s credit report, and it is accurate and verifiable, then the credit reporting agencies cannot, and should not, remove it. Your third party is there to help you get the inaccurate, erroneous or obsolete items corrected or removed. However, there is a due diligence method of verification that all creditors must follow. If credit is reported in an incorrect manner, that is considered erroneous.

Q. Once a credit reporting agency has removed an item from a customer’s credit report, can it be reinserted?

A. Credit reporting agencies are often reinserting items that they have previously removed from a consumer’s credit report. According to the FCRA, one of the requirements for reinsertion of items is that a consumer must be notified within five days when an item is reinserted. Most consumers are not made aware when these items are reinserted at all, let alone in five days. That’s one of the benefits to our customers when signing up for our service for a year. They find out when items are reinserted, and then we can have the credit reporting agencies verify that the item is in fact accurate, and that they followed the FCRA requirements for reinsertion.

Q. What is the definition of improper negative credit?

A. Some examples of “improper,” or better stated “inaccurate,” items on a consumer’s credit report are items that either are 1) erroneous — don’t belong to the consumer, 2) display inaccurate information about the item, i.e. payment history or dates, or 3) obsolete — have exceeded the reporting timeline for that item.

Q. What is the definition of “clearing up” a consumer’s credit report or improving their credit profile?

A. When you have inaccurate, erroneous and obsolete items identified and/or corrected on their credit report and go through the proper channels to provide a more accurate credit profile for both you and any new lenders. Clearing up Correct information is against what the Fair Credit Reporting Act is in place for. You should not attempt to clear up correct information. You should only dispute information that is believed to be inaccurate, obsolete, or erroneous.

Q. What sort of things does your program do to force a repository to follow the FCRA and remove an item on behalf of a consumer?

A. The unique credit repair procedure we use to help customers correct their credit report is available with the purchase of our software package. All the forms and tactics used are available throughout the web, but the credit agencies have done their job to make sure they are well hidden, scattered, and not easily understood. We simplify that research and process for you for a very minimal cost.

 

 

Q. How is the service provided by a third party for consumer dispute resolution different or better than the current processes being offered by the various Credit Reporting Agencies?

A. The best analogy that we can offer is, if you have a tax problem, would you call the IRS or would you find and hire a qualified tax accountant? Most people do not have the time or the resources to fully understand the FCRA, nor do they want to. Using a third party ensures that you have received the proper information offered to them through the FCRA. The credit reporting agencies are advocates for their customers, financial and lending institutions, which by itself is not a bad thing. We are advocates for our customers, and their consumer rights.

Q. How would a mortgage broker or lender feel about the added unknown risk of lending their money to an individual whose credit report has been altered to possibly reflect an inaccurate profile?

A. We’re sure they would not feel very good about this because, in this scenario, someone has committed fraud. Everyone needs to understand that if you have an item removed or changed on your credit report, it was removed or changed by the credit reporting agencies, and they removed or changed the item because it was decided to be inaccurate, erroneous or obsolete. Anyone using the Credit Detailer system can help determine if their credit is truly inaccurate, and then re-entering the credit world with a more accurate profile, not a less accurate profile. This benefits everyone, our customers and their lenders. Investors should feel better about the services we provide because they would be looking at a more accurate picture of a consumer’s credit worthiness, and they could then extend credit to a good customer who may otherwise have been denied.

Q. How would a mortgage broker feel, knowing that a major derogatory item, like a bankruptcy, foreclosure, etc., has been removed from a credit file, just because it could be, and yet not disclosed to the lender?

A. Whenever we are asked, our answer to our customers is that they must disclose everything. Remember, when customers complete your service, they are able to provide a more accurate credit profile, not an incomplete profile. Keep in mind that the FCRA was originally conceived, written, and ultimately signed into law for a reason: to provide consumers rights under the law, to protect them from inaccurate, erroneous, and obsolete information provided by credit reporting agencies.

 

It is our goal to have the credit reporting agencies provide the most accurate credit profile of a consumer applying for credit, to enable lenders to make the best decisions, and that is the service we provide with our system. There seems to be a “myth” about our credit repair services — that we are trying to ”hide” derogatory items for customers, or artificially make someone’s credit report look better. All we do is work with the credit reporting agencies to abide by the law. If every credit reporting agency completely abided by the FCRA. Perhaps there should be some discussions on how credit reporting agencies can better comply with the FCRA. This would do more to further the goal of more accurate credit reporting than trying to substantiate the myths about the services we provide.

While the process of repairing credit reports should be easy to do on your own, getting results can be difficult, time consuming, and frustrating; Practically every consumer has inaccurate or outdated information being reported to their credit from one or more of the three major credit bureaus.

These errors or inaccuracies can be costly to the consumer when applying for a Car or Home Loan. It’s up to the consumer to get these errors corrected. 

The Credit bureaus are not obligated to root out errors and provide accurate information, their job is to record the information presented to them by Creditors, and in many cases this information is not accurate causing the consumer to have derogatory items on their credit and minimizing the possibility to obtain a loan or a good interest rate. 

As our economy becomes sluggish, debt level rises and you start to hear about the “Sub prime Crisis” and the “Credit Crunch” it is obvious that millions of Americans are having problems with their credit.

We are here to help you understand your credit and to guide you through the path to achieve good credit.

We have researched and designed a system to help individuals who want to learn about their credit report and review it for accuracy. If there are errors or mistakes, we simplify the learning curve and process for resolving the truth. We also designed this for those of you wanting to help others achieve the credit standing they deserve.
Not everyone wants to spend their time dealing with credit, but since it is so important in the financial world, we want to help give you a jump-start on looking at your own credit.
Having a wrong credit report can cost you in any or all of these areas:

• Mortgage Rates & Loan Amounts
• Automotive Insurance Rates
• Automotive Loan Rates, Loan Amounts, and down payment amount
• Apartment Rentals
• New Job Employment

We understand that you may not be an expert on the credit system and reporting inner workings, so that why we designed our systems to work with any level of knowledge.
Remember, the Credit Reporting bureaus are not a government agency. They are a company that is regulated by the Federal Trading Commission. That means these companies are completely separate from any form of government. They are companies in business to make money. And since their business can affect the lives of all Americans, the government makes sure they, like any other business, are not acting unfairly.
It is up to you to periodically review the content of your report and dispute anything you feel is inaccurate.
The FREE information on our web pages allows ANYONE to learn about credit reporting and your consumer rights. After you get all the free information from our site call us to help start the process of correcting your credit errors.

The content provided here is not a substitute for the Fair Credit Reporting Act, or the advice of a professional. If you have specific needs, you should refer to the Federal Trade Commission or hire a professional to assist you.

It's important to remove a negative credit records from your credit report to obtain a higher credit rating. Bad credit can cost you thousands of dollars!
The three major credit bureaus, Experian, Equifax and Trans Union evaluate each person credit history and provide a "Credit Score". This calculation is complex, but all the information is based on data submitted to them about you from your creditors.
It is not uncommon that a credit report includes, wrong, inaccurate or incomplete data about your credit records.
Consumers working on their credit reports say many times their letters are ignored by the credit bureaus. Consumers say even with proof a credit record is not theirs, its removal from their credit report can take three or four challenge letters, because the credit bureaus may have only verified it in their computers and not on the credit report.
If the bureaus do not reply within the 30 days, it must be that the information was either inaccurate, or it could not be verified. In either case, according to the Fair Credit Reporting Act, the credit record must be immediately deleted from credit report.
http://www.prweb.com/releases/2004/1/prweb99221.htm
* 70% of credit reports contain errors of some kind.
* 29% contained serious errors, such as delinquencies, that could lead to unfair denial of credit.
http://www.consumersunion.org/finance/scorewc200.htm
Over 40 million Americans pay higher mortgage rates due to errors on their credit reports.
American Bankruptcy Institute; www.usatoday.com/money/economy/2003-02-14-bankruptcies_x.htm.
27.3 million Americans have been victims of identity theft in the last five years, Including 9.9 million people in the last year alone. http://www.ftc.gov/opa/2003/09/idtheft.htm
According to the Gartner study the 2006 victim population was at 15 million victims. That means every minute about 28 ½ people become a new victim of this crime, or a new victim in just over 2 seconds.
http://www.idtheftcenter.org/artman2/publish/m_facts/Facts_and_Statistics.shtml

A July 2003 study by Gartner, Inc. found that there was a 79 percent increase in identity theft in the past year alone. The U.S. Secret Service has estimated that consumers nationwide lose $745 million to identity theft each year. Identity theft is the fastest growing crime in the United States.
http://cantwell.senate.gov/ID/statistics.html

*Rates displayed are estimates and only used for example purposes.

Having a Lower score can cost you almost $1,000 MORE for the same $300,000 borrowed!
Having good clean good credit pays! - Having credit mistakes bring your scores down costs you

There are five types of information used to calculate a FICO score at any given point in time.
Each type of information counts as a percentage of a total FICO score:

1. Payment history = 35%
2. Amounts owed = 30%
3. Length of credit history = 15%
4. New credit = 10%

5.Types of credit in use  = 10%
These percentages are based on the importance of the five categories for the general population. For particular groups, such as people with relatively short credit histories, the importance of the categories may differ.

How inquiries are factored into FICO scores.

Inquiries are a subset of the "new credit" category shown above, which accounts for 10% of the total FICO score. Their importance depends on the overall information in your credit report. For some people, a given factor may be more important than for someone else with a different credit history. In addition, as the information in your credit report changes, so does the importance of any factor in determining your score. What's important is the mix of information, which varies from person to person, and for any one person over time.

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