A Better Credit Record
Newspapers, radio, TV and the
Internet are filled with advertisements that offer—for a fee—to erase
accurate negative information in your credit file.
The scam artists who run these ads can't deliver. Only time, a deliberate
effort, and a plan to repay your bills will improve your credit record.
This publication is designed to help you
understand and legally improve your credit report. This publication
has five sections:
||Explains how consumer reporting
agencies work and your rights under the Fair Credit Reporting
||Explains how you can legally
improve your credit report.
||Offers tips on dealing with
||Cautions you about credit-related
scams and how to avoid them.
||Lists resources for additional
ever applied for a credit card, a personal loan, or insurance, there's
a file about you. This file contains information on where you work
and live, how you pay your bills, and whether you've been sued, arrested,
or filed for bankruptcy.
Companies that gather and sell this information
are called Consumer Reporting Agencies (CRAs). The most common type
of CRA is the credit bureau. The information CRAs sell about you to
creditors, employers, insurers, and other businesses is called a consumer
The Fair Credit Reporting
The FCRA is designed to promote accuracy and ensure the privacy of
information used in consumer reports. Recent amendments to the Act
expand your rights and place additional requirements on CRAs. Businesses
that supply information about you to CRAs and those that use consumer
reports also have new responsibilities under the law.
Here are some questions consumers commonly ask
about consumer reports and CRAs—and the answers.
- Q. How do I find the CRA that has my
- A. Contact the CRAs listed
in the Yellow Pages under "credit" or "credit rating
and reporting." Because more than one CRA may have a file on
you, call each until you have located all the agencies maintaining
your file. The three major credit bureaus are:
In addition, anyone who takes action against
you in response to a report supplied by a CRA—such as denying your
application for credit, insurance, or employment—must give you the
name, address, and telephone number of the CRA that provided the
- Q. Do I have a right to know what's
in my report?
- A. Yes, if you ask for it.
The CRA must tell you everything in your report, including medical
information, and in most cases, the sources of the information.
The CRA also must give you a list of everyone who has requested
your report within the past two years for employment related requests.
- Q. Is there a charge for my report?
- A. Sometimes. There's no charge
if a company takes adverse action against you, such as denying your
application for credit, insurance or employment, and you request
your report within 60 days of receiving the notice of the action.
The notice will give you the name, address, and phone number of
the CRA. In addition, you're entitled to one free report a year
if you certify in writing that (1) you're unemployed and plan to
look for a job within 60 days, (2) you're on welfare, or (3) your
report is inaccurate because of fraud. Otherwise, a CRA may charge
you up to $9.00 for a copy of your report.
Even if you have not been denied credit, you
may want to find out what information is in your credit report.
Some financial advisors suggest that you review your credit report
periodically for inaccuracies or omissions. This could be especially
important if you're considering a major purchase, such as buying
a home or a car. Checking in advance on the accuracy of the information
in your credit report could speed the credit-granting process.
- Q. What type of information do credit
bureaus collect and sell?
- A. Credit bureaus collect
and sell four basic types of information.
Identification and employment information
Your name, birth date, Social Security number, employer,
and spouse's name are routinely noted. The CRA also may provide
information about your employment history, home ownership, income,
and previous address, if a creditor requests this type of information.
Your accounts with different creditors are listed, showing
how much credit has been extended and whether you've paid on time.
Related events, such as referral of an overdue account to a collection
agency, may also be noted.
CRAs must maintain a record of all creditors who have
asked for your credit history within the past year, and a record
of those persons or businesses requesting your credit history
for employment purposes for the past two years.
Public record information
Events that are a matter of public record, such as bankruptcies,
foreclosures, or tax liens, may appear in your report.
Your Credit Report
law, both the CRA and the organization that provided the information
to the CRA, such as a bank or credit card company, have responsibilities
for correcting inaccurate or incomplete information in your report.
To protect all your rights under the law, contact both the CRA and
the information provider if you have a dispute.
- First, tell the CRA in writing
what information you believe is inaccurate. Include copies (not
originals) of documents that support your position. In addition
to providing your complete name and address, your letter should
clearly identify each item in your report you dispute, state the
facts and explain why you dispute the information, and request deletion
or correction. You may want to enclose a copy of your report with
the items in question circled. Your letter may look something like
the one below. Send your letter by certified mail, return receipt
requested, so you can document what the CRA received. Keep copies
of your dispute letter and enclosures.
Your City, State, Zip Code
Name of Credit Reporting Agency
City, State, Zip Code
Dear Sir or Madam:
I am writing to dispute the following
information in my file. The items I dispute also are encircled
on the attached copy of the report I received.
This item (identify item(s) disputed
by name of source, such as creditors or tax court, and identify
type of item, such as credit account, judgment, etc.) is
(inaccurate or incomplete) because (describe what is inaccurate
or incomplete and why). I am requesting that the item be
deleted (or request another specific change) to correct
Enclosed are copies of (use this sentence
if applicable and describe any enclosed documentation, such
as payment records, court documents) supporting my position.
Please reinvestigate this (these) matter(s) and (delete
or correct) the disputed item(s) as soon as possible.
Enclosures: (List what you are enclosing)
CRAs must reinvestigate the item(s)
in question—usually within 30 days—unless they consider your dispute
frivolous. They also must forward all relevant data you provide
about the dispute to the information provider. After the information
provider receives notice of a dispute from the CRA, it must investigate,
review all relevant information provided by the CRA, and report
the results to the CRA. If the information provider finds the
disputed information to be inaccurate, it must notify all nationwide
CRAs so that they can correct this information in your file.
Disputed information that cannot
be verified must be deleted from your file.
- If your report contains inaccurate information,
the CRA must correct it.
- If an item is incomplete, the CRA must
complete it. For example, if your file showed that you were
late making payments, but failed to show that you were no longer
delinquent, the CRA must show that your payments are now current.
- If your file shows an account that belongs
only to another person, the CRA must delete it.
When the reinvestigation is complete, the
CRA must give you the written results and a free copy of your
report if the dispute results in a change. If an item is changed
or removed, the CRA cannot put the disputed information back in
your file unless the information provider verifies its accuracy
and completeness, and the CRA gives you a written notice of its
intent to reinsert the items that includes the name, address,
and phone number of the provider.
If you request, the CRA must
send notices of any correction to anyone who received your report
in the past six months. You can have a corrected copy of your
report sent to anyone who received a copy during the past two
years for employment purposes. If a reinvestigation does not resolve
your dispute, ask the CRA to include your statement of the dispute
in your file and in future reports.
- In addition to writing to the CRA, you should
tell the creditor or other information provider in writing that
you dispute an item. Be sure to include copies (not originals) of
documents that support your position. Many providers specify an
address for disputes. If the provider continues to report the disputed
item to any CRA after receiving your notice, it must include a notice
that you dispute the item. If you are correct—that is, if the information
is not accurate—the information provider may not
report it again.
Accurate Negative Information
When negative information in your report is accurate,
only the passage of time can assure its removal. Accurate negative
information generally can stay on your report for seven years. There
are certain exceptions:
- Bankruptcy information may be reported for
- Credit information reported in response to
an application for a job with a salary of more than $75,000 has
no time limit.
- Information about criminal convictions has
no time limit.
- Credit information reported because of an application
for more than $150,000 worth of credit or life insurance has no
- Default information concerning U.S. Government
insured or guaranteed student loans can be reported for seven years
after certain guarantor actions.
- Information about a lawsuit or an unpaid judgment
against you can be reported for seven years or until the statute
of limitations runs out, whichever is longer.
There is a standard method for calculating the seven-year
reporting period. Generally, the period runs from the date that the
event took place.
With regard to any delinquent account placed for
collection—internally or by referral to a third-party debt collector,
whichever is earlier—charged to profit and loss, or subjected to any
similar action, the seven-year period is calculated from the date
of the delinquency that occurred immediately before the collection
activity, charge to profit and loss, or similar action. For example,
assume that your payments on a loan were late in January, but that
you caught up in February. You were late again in May, but caught
up in July. You were again late in September, but did not catch up
before the account was turned over to a collection agency in December.
You made no more payments on the account, and it is charged to profit
and loss in July of the following year.
Under the FCRA, the January and May late payments
each can be reported for seven years. The collection activity and
the charge to profit and loss can be reported for seven years from
the date of the September payment, which was the delinquency that
occurred immediately before those activities.
Adding Accounts to
Your credit file may not reflect all your credit accounts.
Although most national department store and all-purpose bank credit
card accounts will be included in your file, not all creditors supply
information to CRAs: Some travel, entertainment, gasoline card companies,
local retailers, and credit unions are among those creditors that
If you've been told that you were denied credit
because of an "insufficient credit file" or "no credit
file" and you have accounts with creditors that don't appear
in your credit file, ask the CRA to add this information to future
reports. Although they are not required to do so, many CRAs will add
verifiable accounts for a fee. However, understand that if these creditors
do not report to the CRA on a regular basis, the added items will
not be updated in your file.
having trouble paying your bills? Are you getting dunning notices
from creditors? Are your accounts being turned over to debt collectors?
Are you worried about losing your home or your car?
You're not alone. Many people face financial crises
at some time in their lives. Whether the crisis is caused by personal
or family illness, the loss of a job, or simple overspending, it can
seem overwhelming, but often can be overcome. The fact of the matter
is that your financial situation doesn't have to go from bad to worse.
If you or someone you know is in financial hot
water, consider these options: realistic budgeting, credit counseling
from a reputable organization, debt consolidation, or bankruptcy.
How do you know which will work best for you? It depends on your level
of debt, your level of discipline, and your prospects for the future.
Developing a Budget
The first step toward taking control of your financial situation
is to do a realistic assessment of how much money comes in and how
much money you spend. Start by listing your income from all sources.
Then, list your "fixed" expenses—those that are the same
each month—such as your mortgage payments or your rent, car payments,
or insurance premiums. Next, list the expenses that vary, such as
entertainment, recreation, or clothing. Writing down all your expenses—even
those that seem insignificant—is a helpful way to track your spending
patterns, identify the expenses that are necessary, and prioritize
the rest. The goal is to make sure you can make ends meet on the basics:
housing, food, health care, insurance, and education.
Your public library has information about budgeting
and money management techniques. Low cost budget counseling services
that can help you analyze your income and expenses and develop a budget
and spending plan also are available in most communities. Check your
Yellow Pages or contact your local bank or consumer protection office
for information about them. In addition, many universities, military
bases, credit unions, and housing authorities operate nonprofit financial
Contacting Your Creditors
Contact your creditors immediately if you are having trouble
making ends meet. Tell them why it's difficult for you, and try to
work out a modified payment plan that reduces your payments to a more
manageable level. Don't wait until your accounts have been turned
over to a debt collector. At that point, the creditors have given
up on you.
Dealing with Debt Collectors
The Fair Debt Collection Practices Act is the federal law
that dictates how and when a debt collector may contact you. A debt
collector may not call you before 8 a.m., after 9 p.m., or at work
if the collector knows that your employer doesn't approve of the calls.
Collectors may not harass you, make false statements, or use unfair
practices when they try to collect a debt. Debt collectors must honor
a written request from you to stop further contact.
If you aren't disciplined enough to create a workable
budget and stick to it, can't work out a repayment plan with your
creditors, or can't keep track of mounting bills, consider contacting
a credit counseling service. Your creditors may be willing to accept
reduced payments if you enter into a debt repayment plan with a reputable
organization. In these plans, you deposit money each month with the
credit counseling service. Your deposits are used to pay your creditors
according to a payment schedule developed by the counselor. As part
of the repayment plan, you may have to agree not to apply for—or use—any
additional credit while you're participating in the program.
A successful repayment plan requires you to make
regular, timely payments, and could take 48 months or longer to complete.
Ask the credit counseling service for an estimate of the time it will
take you to complete the plan. Some credit counseling services charge
little or nothing for managing the plan; others charge a monthly fee
that could add up to a significant charge over time. Some credit counseling
services are funded, in part, by contributions from creditors.
While a debt repayment plan can eliminate much
of the stress that comes from dealing with creditors and overdue bills,
it does not mean you can forget about your debts. You still are responsible
for paying any creditors whose debts are not included in the plan.
You are responsible for reviewing monthly statements from your creditors
to make sure your payments have been received. If your repayment plan
depends on your creditors agreeing to lower or eliminate interest
and finance charges, or waive late fees, you are responsible for making
sure these concessions are reflected on your statements.
A debt repayment plan does not erase your negative
credit history. Accurate information about your accounts can stay
on your credit report for up to seven years. In addition, your creditors
will continue to report information about accounts that are handled
through a debt repayment plan. For example, creditors may report that
an account is in financial counseling, that payments have been late
or missed altogether, or that there are write-offs or other concessions.
A demonstrated pattern of timely payments, however, will help you
get credit in the future.
Auto and Home Loans
Debt repayment plans usually cover unsecured debt. Your auto
and home loan, which are considered secured debt, may not be included.
You must continue to make payments to these creditors directly.
Most automobile financing agreements allow a creditor
to repossess your car any time you're in default. No notice is required.
If your car is repossessed, you may have to pay the full balance due
on the loan, as well as towing and storage costs, to get it back.
If you can't do this, the creditor may sell the car. If you see default
approaching, you may be better off selling the car yourself and paying
off the debt: You would avoid the added costs of repossession and
a negative entry on your credit report.
If you fall behind on your mortgage, contact your
lender immediately to avoid foreclosure. Most lenders are willing
to work with you if they believe you're acting in good faith and the
situation is temporary. Some lenders may reduce or suspend your payments
for a short time. When you resume regular payments, though, you may
have to pay an additional amount toward the past due total. Other
lenders may agree to change the terms of the mortgage by extending
the repayment period to reduce the monthly debt. Ask whether additional
fees would be assessed for these changes, and calculate how much they
total in the long run.
If you and your lender cannot work out a plan,
contact a housing counseling agency. Some agencies limit their counseling
service to homeowners with FHA mortgages, but many offer free help
to any homeowner who's having trouble making mortgage payments. Call
the local office of the Department of Housing and Urban Development
(HUD) or the housing authority in your state, city, or county for
help in finding a housing counseling agency near you.
You may be able to lower your cost of credit by consolidating
your debt through a second mortgage or a home equity line of credit.
Think carefully before taking this on. These loans require your home
as collateral. If you can't make the payments—or if the payments are
late—you could lose your home.
The costs of these consolidation loans can add
up. In addition to interest on the loan, you pay "points."
Typically, one point is equal to one percent of the amount you borrow.
Still, these loans may provide certain tax advantages that are not
available with other kinds of credit.
Personal bankruptcy generally is considered the debt
management tool of last resort because the results are long-lasting
and far-reaching. A bankruptcy stays on your credit report for 10
years, making it difficult to acquire credit, buy a home, get life
insurance, or sometimes get a job. However, it is a legal procedure
that offers a fresh start for people who can't satisfy their debts.
Individuals who follow the bankruptcy rules receive a discharge—a
court order that says they do not have to repay certain debts.
There are two primary types of personal bankruptcy:
Chapter 13 and Chapter 7. Each must be filed in federal
bankruptcy court. The current fees for seeking bankruptcy relief are
$160: a filing fee of $130 and an administrative fee of $30. Attorney
fees are additional and can vary widely. The consequences of bankruptcy
are significant and require careful consideration.
Chapter 13 allows you, if you
have a regular income and limited debt, to keep property, such as
a mortgaged house or car, that you otherwise might lose. In Chapter
13, the court approves a repayment plan that allows you to pay off
a default during a period of three to five years, rather than surrender
Chapter 7, known as straight
bankruptcy, involves liquidating all assets that are not exempt. Exempt
property may include cars, work-related tools and basic household
furnishings. Some property may be sold by a court-appointed official—a
trustee—or turned over to creditors. You can receive a discharge of
your debts under Chapter 7 only once every six years.
Both types of bankruptcy may get rid of unsecured
debts and stop foreclosures, repossessions, garnishments, utility
shut-offs, and debt collection activities. Both also provide exemptions
that allow you to keep certain assets, although exemption amounts
vary. Personal bankruptcy usually does not erase child support, alimony,
fines, taxes, and some student loan obligations. Also, unless you
have an acceptable plan to catch up on your debt under Chapter 13,
bankruptcy usually does not allow you to keep property when your creditor
has an unpaid mortgage or lien on it.
to a business that offers help in solving debt problems may seem like
a reasonable solution when your bills become unmanageable. Be cautious.
Before you do business with any company, check it out with your local
consumer protection agency or the Better Business Bureau in the company's
Ads Promising Debt
Relief May Be Offering Bankruptcy
Consumer debt is at an all-time high. What's more, a
record number of consumers—nearly 1.5 million in 2001—are filing for
bankruptcy. Whether your debt dilemma is the result of an illness,
unemployment, or overspending, it can seem overwhelming. In your effort
to get solvent, be on the alert for advertisements that offer seemingly
quick fixes. While the ads pitch the promise of debt relief, they
rarely say relief may be spelled b-a-n-k-r-u-p-t-c-y. And although
bankruptcy is one option to deal with financial problems, it's generally
considered the option of last resort. The reason: it has a long-term
negative impact on your creditworthiness. A bankruptcy stays on your
credit report for 10 years, and can hinder your ability to get credit,
a job, insurance, or even a place to live.
The Federal Trade Commission (FTC) cautions consumers
to read between the lines when faced with ads in newspapers, magazines,
or even telephone directories that say:
your bills into one monthly payment without borrowing"
credit harassment, foreclosures, repossessions,
tax levies and garnishments"
out your debts! Consolidate your bills! How?
using the protection and assistance provided by federal
law. For once, let the law work for you!"
You'll find out later that such phrases often
involve bankruptcy proceedings, which can hurt your credit and cost
you attorneys' fees.
Advance-Fee Loan Scams
These scams often target consumers with credit problems
or consumers who have difficulty getting credit. In exchange for an
up-front fee, these companies guarantee that applicants will get the
credit they want—usually a credit card or a personal loan.
The up-front fee may range from $100 to several
hundred dollars. Resist the temptation to follow up on advance-fee
loan guarantees. They may be illegal. Many legitimate creditors offer
extensions of credit, such as credit cards, loans, and mortgages,
through telemarketing and require an application fee or appraisal
fee in advance. But legitimate creditors never guarantee in
advance that you'll get the loan. Under the federal Telemarketing
Sales Rule, a seller or telemarketer who guarantees or represents
a high likelihood of your getting a loan or some other extension of
credit may not ask for or receive payment until you've
received the loan.
Recognizing an Advance-Fee Loan Scam
There are many fraudulent loan brokers and other individuals
misrepresenting the availability of credit and credit terms. One of
their favorite strategies is the "advance-fee" loan scam.
That's where they claim to guarantee that they can get a loan or other
type of credit for you—but you must pay a fee before you apply.
Ads for advance-fee loans often appear in the
classified ad section of local and national newspapers and magazines.
They also may appear in mailings, radio spots, and on local cable
stations. Often, these ads feature "900" numbers, which
result in charges on your phone bill. In addition, these companies
often use delivery systems other than the U.S. Postal Service, such
as overnight or courier services, to avoid detection and prosecution
by postal authorities.
Don't confuse a legitimate credit offer with an
advance-fee loan scam. An offer for credit from a bank, savings and
loan, or mortgage broker generally requires your verbal or written
acceptance of the loan or credit offer. The offer usually is subject
to a check of your credit report after you apply to make sure you
meet their credit standards. You are usually not required to pay a
fee in order to get the credit.
Be suspicious of anyone who calls you on the phone
and says they can guarantee you will get a loan if you pay in advance.
Hang up. It's against the law.
Here are some points to keep in mind before you respond to
ads that promise easy credit, regardless of your credit history:
Most legitimate lenders will not "guarantee"
that you will get a loan or a credit card before you apply, especially
if you have bad credit, or a bankruptcy.
It is an accepted and common practice for reputable
lenders to require payment for a credit report or appraisal. You also
may have to pay a processing or application fee.
Never give your credit card account number, bank
account information, or Social Security number out over the telephone
unless you are familiar with the company and know why the information
Credit Repair Scams
You see the ads in newspapers, on TV, and on the Internet.
You hear them on the radio. You get fliers in the mail. You may even
get calls from telemarketers offering credit repair services. They
all make the same claims:
problems? No problem!"
can erase your bad credit—100% guaranteed."
a new credit identity—legally."
can remove bankruptcies, judgments, liens,
and bad loans from your credit file forever!"
Do yourself a favor and save some
money too. Don't believe these statements. Only time, a conscientious
effort, and a plan for repaying your debt will improve your credit
Every day, companies nationwide appeal to consumers with
poor credit histories. They promise, for a fee, to clean up your credit
report so you can get a car loan, a home mortgage, insurance, or even
a job. The truth is, they can't deliver. After you pay them hundreds
or thousands of dollars in up-front fees, these companies do nothing
to improve your credit report; many simply vanish with your money.
The Warning Signs
If you decide to respond to a credit repair offer, beware
of companies that:
- want you to pay for credit repair services
before any services are provided;
- do not tell you your legal rights and what
you can do—yourself—for free;
- recommend that you not contact a credit bureau
- suggest that you try to invent a "new"
credit report by applying for an Employer Identification Number
to use instead of your Social Security number; or
- advise you to dispute all information in your
credit report or take any action that seems illegal, such as creating
a new credit identity. If you follow illegal advice and commit fraud,
you may be subject to prosecution.
You could be charged and prosecuted for mail or
wire fraud if you use the mail or telephone to apply for credit and
provide false information. It's a federal crime to make false statements
on a loan or credit application, to misrepresent your Social Security
number, and to obtain an Employer Identification Number from the Internal
Revenue Service under false pretenses.
Credit Repair Organizations Act
By law, credit repair organizations must give you a copy
of the "Consumer Credit File Rights Under State and Federal Law"
before you sign a contract. They also must give you a written contract
that spells out your rights and obligations. Read these documents
before signing the contract. The law contains specific consumer protections.
For example, a credit repair company cannot:
- make false claims about their services;
- charge you until they have completed the promised
- perform any services until they have your signature
on a written contract and have completed a three-day waiting period.
During this time, you can cancel the contract without paying any
Your contract must specify:
- the payment for services, including their total
- a detailed description of the services to be
- how long it will take to achieve the results;
- any guarantees they offer; and
- the company's name and business address.
If You Are A Victim
— Where to Complain...
If you've had a problem with any of the scams described
here, contact your local consumer protection agency, state Attorney
General (AG), or Better Business Bureau. Many AGs have toll-free consumer
hotlines. Check with your local directory assistance.
Trade Commission enforces a number of credit laws and provides
consumers with free information about them:
- The Equal
Credit Opportunity Act prohibits the denial of credit because
of your sex, race, marital status, religion, national origin, age,
or because you receive public assistance.
- The Fair
Credit Reporting Act gives you the right to learn what information
is being distributed about you by credit reporting agencies.
- The Truth
in Lending Act requires lenders to give you written disclosures
of the cost of credit and terms of repayment before you enter into
a credit transaction.
- The Fair
Credit Billing Act establishes procedures for resolving billing
errors on your credit card accounts.
- The Fair
Debt Collection Practices Act prohibits debt collectors from
using unfair or deceptive practices to collect overdue bills that
your creditor has forwarded for collection.
| The FTC works for the consumer to prevent fraudulent, deceptive
and unfair business practices in the marketplace and to provide information
to help consumers spot, stop, and avoid them. To file a
complaint or to get free
information on consumer issues, visit www.ftc.gov
or call toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261. The
FTC enters Internet, telemarketing, identity theft, and other fraud-related
Consumer Sentinel, a secure, online database available to hundreds of civil
and criminal law enforcement agencies in the U.S. and abroad.