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 Act.
Explains how you can legally improve your credit report.
Section 3: Offers
tips on dealing with debt.
Section 4: Cautions
you about credit-related scams and how to avoid them.
Section 5: Lists
resources for additional information.
If you've 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
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 report.
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 report?
- 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:
- Trans Union
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 report.
- Q. Do I have a right to know what's in
- 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
Under the 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 the information.
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
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 10 years.
- 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
- Credit information reported because of an application
for more than $150,000 worth of credit or life insurance has no time
- 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.
Seven-year Reporting Period
There is a standard method for calculating the seven-year
reporting period. Generally, the period runs from the date that the event
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
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 don't.
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
Are you 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
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 counseling programs.
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
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
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 any property.
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.
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 location.
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 1.3 million in 1999—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:
bills into one monthly payment without borrowing"
"STOP credit harassment,
foreclosures, repossessions, tax levies and garnishments"
"Keep Your Property"
"Wipe out your debts!
Consolidate your bills! How?
By 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'
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 is necessary.
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:
"We can erase your
bad credit—100% guaranteed."
"Create a new credit
"We can remove bankruptcies,
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 report.
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
- 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 fees.
Your contract must specify:
- the payment for services, including their total
- a detailed description of the services to be performed;
- 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
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
- 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.