Inspections Unlimited

Credit

David Deckelmann
Updated by Brandi Gibson, Oct 2008

Q # 1 Who are the credit bureaus and how do I contact them?

Q # 2 What kind of information is contained in a credit report?

Although each credit reporting agency formats and reports this information differently, all credit reports contain basically the same categories of information: Identifying information, Trade Lines, Inquires, Public Records and Collections. 
 
 Identifying information:
Your name, address, Social Security number, date of birth and employment information are used to identify you. These factors are not used in scoring. Updates to this information come from information you supply to lenders.

Public Record and Collection Items.
Credit reporting agencies also collect public record information from state and county courts, and information on overdue debt from collection agencies. Public record information includes bankruptcies, foreclosures, suits, wage attachments, liens and judgments.

Trade Lines or accounts:
These are your credit accounts. Lenders report on each account you have established with them. They report the type of account (bankcard, auto loan, mortgage, etc), the date you opened the account, your credit limit or loan amount, the account balance and your payment history. Note:  All adverse information has a 7 year maximum reporting time.

Inquiries:

When you apply for a loan, you authorize your lender to ask for a copy of your credit report. This is how inquiries appear on your credit report. The inquiries section contains a list of everyone who accessed your credit report within the last two years. The report you see lists both "voluntary" inquiries, spurred by your own requests for credit, and "involuntary" inquires, such as when lenders order your report so as to make you a pre-approved credit offer in the mail.

      Type                                            Purge Date
Bankruptcy – Chapter 7    10 years from file date
Bankruptcy – Chapter 13   7 years from file date
Civil Judgment                 7 years from file date
Tax Lien                         7 years from the pay off date
Collections                      7 years from charge-off date
Student Loans                 7 years from the pay off date
All Accounts                     7 years from last activity
All inquiries                     2 ears from inquiry date

Q # 3 What is credit scoring?

Along with the credit report, lenders can also buy a credit score based on the information in the report. That score is calculated by a mathematical equation that evaluates many types of information that are on your credit report at that agency. By comparing this information to the patterns in hundreds of thousands of past credit reports, the score identifies your level of future credit risk.  The most common scoring model is called a FICO model for the Fair Isaac Company which invented it. Typically scores range from 300 (low) to 900 (high).  The higher a person’s score the greater the likelihood of loan repayment.  75% of all home loans are decided by FICO Scores

Example of good loans to bad compared to your FICO Score::
Score    #Good Loans to Bad Ones
Less than 600     8 to 1
620-599           26 to 1
660-679           38 to 1
680-699           55 to 1
700-719         123 to 1
720-759         323 to 1
760-799         597 to 1
above 800    1292 to 1
 

Q # 4  What are the different credit bureau names for FICO Scores?

FICO scores have different names at each of the three credit reporting agencies. All of these scores, however, are developed using the same methods by Fair Isaac, and have been rigorously tested to ensure they provide the most accurate picture of credit risk possible using credit report data.

  Bureau                                               Score
  Equifax (formerly CBI)             BEACON
  Trans Union                           EMPIRICA
  Experian (formerly TRW)         The Experian/Fair Isaac Model

Q # 5  How is a FICO score broken down?

   10% Types of Credit
10% New Credit
15% Length of Credit History
30% Amount Owed
35% Payment History

 Q # 6 How do I improve my score?

 
Payment History  35%
• Pay your bills on time.  If you slip up here and there it can hurt your score.  However a pattern of bad behavior is worse than an occasional slip up.  60%-65% of all credit reports do not have any late payments.
• If you miss a payment, get current and stay current.  The longer you pay your bills on time the better your score.
• Be aware that paying off collection accounts will not remove them from you credit report.  They will stay on your report for seven years.
• If you have trouble making ends meet, contact your creditors or see a legitimate credit counselor.  This won't improve score immediately, but if you can begin to manage your credit and pay on time, your score will get better over time.
 
Amount owed   30%
• Keep balances low on credit cards and other "revolving credit."  High outstanding debt relative to the amount of credit you have can affect score.  You should keep you credit balances at 20 to 30 percent of maximum.
• Pay off debt rather than moving it around.  The most effective way to improve score in this area is by paying down your revolving credit.  In fact, owing the same amount but having fewer open accounts may lower your score.
• Don't close unused credit cards as a short-term strategy to raise your score.
• Don't open a number of new credit cards that you don't need, just to increase your available credit.  This approach can back fire and actually lower score.

Length of credit History 15%
• If you have been managing credit for a short time, don't open a lot of new accounts too rapidly.  New accounts will lower your average account age, which will have a larger effect on your score if you don't have a lot of other credit information.  Also, rapid account buildup can look risky if you are a new credit user.
• When getting rid of credit cards it may be wise to keep your oldest card even if it has a high interest rate, use it once a year and pay if off.  Just to keep the history.

New Credit and inquires for new credit 10%
• Do not open several credit accounts in a short period of time, especially if you do not have a long-established credit history. 
• FICO scores distinguish between a search for a single loan and a search for many new credit lines, in part by the length of time over which inquiries occur.
• Re-establish your credit history if you have had problems.  Open new accounts responsibly and paying them off on time will raise your score in the long run.
• It's OK to request and check your own credit report.  This won't affect your score, so long as you order your credit report from the credit bureaus or through an organization authorized to provide credit reports to consumers.

Types of credit   10%
• Apply for and open new accounts only as needed.  Don't open account just to have a better mix of credit - it probably won't raise score
• Have credit cards but manage them responsibly.  In general, having credit cards and installment loans (and paying them on time) will raise your score.  Someone with no credit cards, for example, tends to be higher risk than someone who has managed credit cards responsibly.
• The Credit mix usually won't be a key factor in determining score, but it will be more important if your credit report does not have a lot of other information on which to base a score.

Q # 7  How do mistakes appear?

When a credit report contains errors, it is often because the report is incomplete, or contains information about someone else. This typically happens because:
• The person applied for credit under different names (Robert Jones, Bob Jones, etc.).
• Someone made a clerical error in reading or entering name or address information from a hand-written application.
• The person gave an inaccurate Social Security number, or the lender misread the number.
• Loan or credit card payments were inadvertently applied to the wrong account.

Q # 8 How do I correct or dispute an error on one or more of my credit reports?

You should contact the appropriate consumer reporting agency (also known as credit bureau) and the lender directly. If you report an error to any of the consumer reporting agencies, they are required to investigate and respond to you within 30 days. If you are in the process of applying for a loan, immediately notify your lender of any incorrect information in your report. Your lender will need to reorder your credit report(s) and score once any changes have been made to your information at the consumer reporting agencies. 

You may also go to http://www.annualcreditreport.com/ to request a copy of your report. You can dispute any errors online with these reports. You are entitled to one free credit report from each bureau, each year at no cost. If you would like to know your score, you may purchase the score for a fee.

Q # 9 What should I know before I dispute information in my credit report?

ACCURATE INFORMATION CANNOT BE CHANGED OR REMOVED.

HOW INFORMATION GETS ON YOUR CREDIT REPORT - Organizations with whom you have submitted an application or an existing credit account may furnish your identifying information, employment and/or payment history on open and closed accounts to Credit Reporting Agencies (CRA’s). Some organizations subscribe to one, two or all three major Credit Reporting Agencies. Court researchers obtain public record information from the courts and furnish the data to the three national Credit Reporting Agencies.

HOW LONG INFORMATION REMAINS ON YOUR FILE - As a general rule credit information remains on file for 7 years from the date of last activity. This includes open and closed accounts. There are exceptions; derogatory accounts remain on file for 7 years from the original date of delinquency. As Agreed/Closed accounts may remain on file for 10 years from the last reported date on the Trans Union file. Bankruptcy Chapter 13 remains on file for 7 years, Bankruptcy Chapter 7, 11 and 12 remain on file for 10 years from the date filed.

UPDATING A BANKRUPTCY TO DISCHARGED - If accounts included in a bankruptcy are not indicated as “Discharged” on your credit report, send a copy of your Schedule A which lists all debts that were included in the Bankruptcy along with your Bankruptcy Discharge, to the three 3 CRA’s. With this documentation, the CRA’s can properly update your credit file.

DUPLICATE ACCOUNTS - Some credit grantors issue both revolving and installment accounts using the same account number.  Also, a new account number may be assigned due to a change of address, this would display as the same account with two different account numbers.

STUDENT LOANS - Student loans may be a collection of several small loans that were accepted each semester or school year. The same lender may report each small loan. The total should equal the loan amount you pay.

BALANCE INFORMATION - Since credit grantors supply information on a periodic basis, the balance shown may not be the balance it is today. If the balance reported was correct as of the status date, it is not necessary to dispute the balance on that account.

DIVORCE DECREE - A divorce decree does not supersede the original contract with the creditor and does not release you from legal responsibility on any accounts. You must contact each creditor individually and seek their legal binding release of your obligation. Only after that release can your credit history be updated accordingly.

UNUSED CREDIT CARDS - The best way to cancel credit card accounts that are no longer used is to call the lender and ask that the account be closed. Ask the customer service representative to note the account was closed at your request. You may want to send a letter to the lender making the same request.

PRE-APPROVED CREDIT OFFERS - Many companies and lenders utilize national credit reporting databases to obtain lists to offer pre-approved credit. If you prefer NOT to receive pre-approved offers, please notify the National Opt Out Request Line at (888) 567-8688. An automated attendant will explain the procedure and ask for your identifying information to remove your name from these lists.

“CREDIT CLINICS” OR “CREDIT REPAIR CLINICS” - If an organization claims it can remove negative — but accurate —credit information from your credit report, it is either lying or committing fraud. Their prices range from hundreds to thousands of dollars. Consumers can dispute inaccurate information directly with the Credit Reporting Agency for free or at minimal cost.

NEW SOCIAL SECURITY NUMBER - You must submit evidence that misuse of your old number has caused you recent or ongoing disadvantage.  Obtaining a new number is not easy even if you’ve been victimized and truly need a new number.  It’s a crime to apply for credit using a new or altered Social Security number if your intent is to change your identity and leave behind bad credit.  If convicted you could face fines and even jail

Q # 10  What are my rights in regards to credit rights under the FCRA?

The federal Fair Credit Reporting Act (FCRA) is designed to promote accuracy, fairness, and privacy of information in the files of every "consumer reporting agency" (CRA). Most CRAs are credit bureaus that gather and sell information about you -- such as if you pay your bills on time or have filed bankruptcy -- to creditors, employers, landlords, and other businesses. You can find the complete text of the FCRA,15 U.S.C. §§1681-1681u, at the Federal Trade Commission’s web site (http://www.ftc.gov/) The FCRA gives you specific rights, as outlined below. You may have additional rights under state law. You may contact a state or local consumer protection agency or a state attorney general to learn those rights.

• You must be told if information in your file has been used against you. Anyone who uses information from a CRA to take action against you -- such as denying an application for credit, insurance, or employment -- must tell you, and give you the name, address, and phone number of the CRA that provided the consumer report.

• You can find out what is in your file. At your request, a CRA must give you the information in your file, and a list of everyone who has requested it recently. There is no charge for the report if a person has taken action against you because of information supplied by the CRA, if you request the report within 60 days of receiving notice of the action. You also are entitled to one free report every twelve months upon request if you certify that (1) you are unemployed and plan to seek employment within 60 days, (2) you are on welfare, or (3) your report is inaccurate due to fraud. Otherwise, a CRA may charge you up to eight dollars.

• You can dispute inaccurate information with the CRA. If you tell a CRA that your file contains inaccurate information, the CRA must investigate the items (usually within 30 days) by presenting to its information source all relevant evidence you submit, unless your dispute is frivolous. The source must review your evidence and report its findings to the CRA. (The source also must advise national CRAs -- to which it has provided the data -- of any error.) The CRA must give you a written report of the investigation, and a copy of your report if the investigation results in any change. If the CRA's investigation does not resolve the dispute, you may add a brief statement to your file. The CRA must normally include a summary of your statement in future reports. If an item is deleted or a dispute statement is filed, you may ask that anyone who has recently received your report be notified of the change.

• Inaccurate information must be corrected or deleted. A CRA must remove or correct inaccurate or unverified information from its files, usually within 30 days after you dispute it. However, the CRA is not required to remove accurate data from your file unless it is outdated (as described below) or cannot be verified. If your dispute results in any change to your report, the CRA cannot reinsert into your file a disputed item unless the information source verifies its accuracy and completeness. In addition, the CRA must give you a written notice telling you it has reinserted the item. The notice must include the name, address and phone number of the information source.

• You can dispute inaccurate items with the source of the information. If you tell anyone -- such as a creditor who reports to a CRA -- that you dispute an item, they may not then report the information to a CRA without including a notice of your dispute. In addition, once you've notified the source of the error in writing, it may not continue to report the information if it is, in fact, an error.

• Outdated information may not be reported. In most cases, a CRA may not report negative information that is more than seven years old; ten years for bankruptcies.

• Access to your file is limited. A CRA may provide information about you only to people with a need recognized by the FCRA -- usually to consider an application with a creditor, insurer, employer, landlord, or other business.

• Your consent is required for reports that are provided to employers, or reports that contain medical information. A CRA may not give out information about you to your employer, or prospective employer, without your written consent. A CRA may not report medical information about you to creditors, insurers, or employers without your permission.

• You may choose to exclude your name from CRA lists for unsolicited credit and insurance offers. Creditors and insurers may use file information as the basis for sending you unsolicited offers of credit or insurance. Such offers must include a toll-free phone number for you to call if you want your name and address removed from future lists. If you call, you must be kept off the lists for two years. If you request, complete, and return the CRA form provided for this purpose, you must be taken off the lists indefinitely.

• You may seek damages from violators. If a CRA, a user or (in some cases) a provider of CRA data, violates the FCRA, you may sue them in state or federal court.

The FCRA gives several different federal agencies authority to enforce the FCRA:

Q # 11  Is there anyway to improve my score quickly?

If you have credit card balances, the simple answer is YES, pay down your credit cards! The balances on your revolving accounts (credit cards) have the ability to impact your score.  The optimal utilization for any credit card is 30% of the limit. While a zero balance is always better, your score will not be adversely affected if it is between 0 – 30% of the limit. Once you exceed 30%, your score will be adversely affected. A “maxed out” credit card has the potential to bring your score down by 80-100 points.

Q # 12  Do inquiries hurt my credit?

There is misinformation in the field regarding inquiries. While an inquiry can cost between 4-10 points per bureau, it does not mean that it will make you have bad credit. Consumers with scores in the 600 range will be affected more than consumers with higher scores. However, it has been expressed that you can gain 15-100 points each month depending on what is being reported by the creditors. If you are in the higher range, a few points may not make a difference.

Q # 13  Why is my mortgage score different than the score at the car lot?

There are different scoring models used by different industries.  The models used are for mortgage, auto financing, finance companies and banks. The scores measure different
aspects of buyer behavior that is specific to they type of financing being asked for.

Q #14 How do I stop receiving so many solicitations by mail?

The bureaus make their money by selling their information. One form of this is the actual credit report. Another is selling names & addresses within certain filters set by the buyers of the information. I.E. A credit card company requests 10,000 names in zip codes 97301, 97302, 97303 of homeowners with credit card balances exceeding $5000 with scores between 680 – 720.  The lucky consumers that fit this particular request would then have their names sold to the requesting company, and receive solicitations from said company(ies).

A consumer can “Opt-Out” by calling 888-5-OPTOUT. This option will allow you to “Opt-Out”  for up to 5 years. You may also log on to http://www.optoutprescreen.com/.  This option will allow you to “Opt-Out” for 5 years. You may also “Opt-Out” by mail FOREVER.  We have seen an increase in credit score of 5-30 points per bureau (combined with updated monthly reporting).  A significant decrease in mail activity can usually be seen within 90 days.