A 2015 study released by the Federal Trade Commission found that 23% of consumers identified inaccurate information in their credit reports. You see the advertisements 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:
“Credit problems? No problem!”
“We can erase your bad credit—100% guaranteed.”
“Create a new credit identity—legally.”
“We 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. It takes time, a conscious effort, and a personal debt repayment plan to improve your credit report.
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Everyday, 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 fees, these companies do nothing to improve your credit report; most simply vanish with your money.
What is Credit history?
Sometimes, people talk about your credit. What they mean is your credit history. Your credit history describes how you use money:
- How many credit cards do you have?
- How many loans do you have?
- Do you pay your bills on time?
If you have a credit card or a loan from a bank, you have a credit history. Companies collect information about your loans and credit cards.
Companies also collect information about how you pay your bills. They put this information in one place: your credit report.
What is a credit report?
Your credit report is a summary of your credit history. It lists:
- your name, address, and Social Security number
- your credit cards
- your loans
- how much money you owe
- if you pay your bills on time or late
Why do I have a credit report?
Businesses want to know about you before they lend you money. Would you want to lend money to someone who pays bills on time? Or to someone who always pays late? Businesses look at your credit report when you apply for:
- loans from a bank
- credit cards
Businesses look at your credit report to learn about you. They decide if they want to lend you money, give you a credit card, or insurance. Sometimes, employers look at your credit report when you apply for a job. Cell phone companies and insurance companies look at your credit report, too.
Who makes my credit report?
A company called a credit reporting company collects your information. There are three big credit reporting companies:
These companies write and keep a report about you.
What if I do not have credit?
You might not have a credit history if:
- you have not had credit card
- you have not gotten a loan from a bank or credit union
Without a credit history, it can be harder to get a job, an apartment, or even a credit card. It sounds crazy: You need credit to get credit.
How do I get credit?
Do you want to build your credit history? You will need to pay bills that are included in a credit report.
- Sometimes, utility companies put information into a credit report. Do you have utility bills in your name? That can help build credit.
Many credit cards put information into credit reports.
- Sometimes, you can get a store credit card that can help build credit.
- A secured credit card also can help you build your credit.
Why should I get my credit report?
An important reason to get your credit report is to find problems or mistakes and fix them:
- You might find somebody’s information in your report by mistake.
- You might find information about you from a long time ago.
- You might find accounts that are not yours. That might mean someone stole your identity.
The Warning Signs
If you decide to respond to a credit repair offer, look for these tell-tale signs of a scam:
- Companies that want you to pay for credit repair services before they provide any services.
- Companies that do not tell you your legal rights and what you can do for yourself for free.
- Companies that recommend that you not contact a credit reporting company directly.
- Companies that suggest that you try to invent a "new" credit identity—and then, a new credit report—by applying for an Employer Identification Number to use instead of your Social Security number.
- Companies that advise you to dispute all information in your credit report or take any action that seems illegal, like 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 lie 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.
Under the Credit Repair Organizations Act, 15 U.S.C. §§ 1679-1679j, credit repair companies cannot require you to pay until they have completed the services they have promised. The credit repair organizations (CRO) must fully perform the promised service before receiving any payment. CROs must provide you with a written contract with the following provisions:
- a detailed description of the services provided
- performance time
- payment terms, including the total amount
- any and all guarantees
- date or length of period service will be completed
- CRO’s name and principal business address
You must receive a copy of the “Consumer Credit File Rights Under State and Federal Law” before you sign anything with the CRO. There is a three-day “cooling off” period in which you can cancel the contract without paying any fees.
If you believe that a CRO has violated the law, you can file a complaint with your state Attorney Generaland the Federal Trade Commission. You can also file an action against the CRO for actual damages, punitive damages, costs, and attorneys’ fees for violations of the CROA.
No one can legally remove accurate and timely negative information from a credit report. The law allows you to ask for an investigation of information in your file that you dispute as inaccurate or incomplete. There is no charge for this. Everything a credit repair clinic can do for you legally, you can do for yourself at little or no cost.
Can I see my credit report?
You can get a free copy of your credit report every year. That means one copy from each of the three companies that write your reports. The law says you can get your credit reports free of cost.
According to the Fair Credit Reporting Act 15, U.S.C. § 1681 (FCRA):
- You’re entitled to a free report if a company takes adverse action against you, like denying your application for credit, insurance, or employment, and you ask for your report within 60 days of receiving notice of the action. The notice will give you the name, address, and phone number of the consumer reporting company. You’re also entitled to one free report a year if you're unemployed and plan to look for a job within 60 days; if you're on welfare; or if your report is inaccurate because of fraud, including identity theft.
Each of the nationwide consumer reporting companies—Equifax, Experian, and TransUnion—are required to provide you with a free copy of your credit report, at your request, once every 12 months. The three companies have set up a central website, a toll-free telephone number, and a mailing address through which you can order your free annual report.
- To order, visit https://www.annualcreditreport.com, call 1-877-322-8228, or complete the Annual Credit Report Request Form or mail it to: Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281. Someone might say you can get a free report on another website. They probably are not telling the truth.
- Do not contact the three nationwide consumer reporting companies individually. They are providing free annual credit reports only through https://www.annualcreditreport.com, 1-877-322-8228, and Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281. You may order your reports from each of the three nationwide consumer reporting companies at the same time, or you can order your report from each of the companies one at a time. Otherwise, a consumer reporting company may charge you up to $9.50 for another copy of your report within a 12-month period.
- You can dispute mistakes or outdated items for free. Under the FCRA, both the consumer reporting company and the information provider (that is, the person, company, or organization that provides information about you to a consumer reporting company) are responsible for correcting inaccurate or incomplete information in your report. To take advantage of all your rights under this law, contact the consumer reporting company and the information provider.
What is a credit score?
A credit score is a number. It is based on your credit history. But it does not come with your free credit report unless you pay for it.
FICO Scores, created by the Fair Isaac Corporation, are used by many lenders and range from 300 to 850. FICO scores between:
- 300-579 are considered very poor. Credit applicants may be required to pay a fee or deposit, and applicants with this rating may not be approved for credit at all.
- 580-669 are considered fair. Applicants with scores in this range are considered to be subprime borrowers.
- 670-739 are considered good. Only 8% of applicants in this score range are likely to become seriously delinquent in the future.
- 740-799 are considered very good. Applicants with scores here are likely to receive better than average rates from lenders.
- 800-850 are considered. Applicants with scores in this range are at the top of the list for the best rates from lenders.
Do I need to get my credit score?
It is very important to know what is in your credit report. But a credit score is a number that matches your credit history. If you know your history is good, your score will be good. You can get your credit report for free.
It costs money to find out your credit score. Sometimes a company might say the score is free. But if you look closely, you might find that you signed up for a service that checks your credit for you. Those services charge you every month.
Before you pay any money, ask yourself if you need to see your credit score. It might be interesting. But is it worth paying money for?
How do I fix mistakes in my credit report?
- Write a letter. Tell the credit reporting company that you have questions about information in your report.
- Explain which information is wrong and why you think so.
- Say that you want the information corrected or removed from your report.
- Send a copy of your credit report with the wrong information circled.
- Send copies of other papers that help you explain your opinion.
- Send this information Certified Mail. Ask the post office for a return receipt. The receipt is proof that the credit reporting company got your letter.
Tell the consumer reporting company, in writing, what information you think 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 that it be removed or corrected. You may want to enclose a copy of your report with the items in question circled. Your letter may look something like the one at the end of this article. Send your letter by certified mail, "return receipt requested," so you can document what the consumer reporting company received. Keep copies of your dispute letter and enclosures.
Consumer reporting companies must investigate the items in question—usually within 30 days—unless they consider your dispute frivolous. They also must forward all the relevant data you provide about the inaccuracy to the organization that provided the information. After the information provider receives notice of a dispute from the consumer reporting company, it must investigate, review the relevant information, and report the results back to the consumer reporting company. If the information provider finds the disputed information is inaccurate, it must notify all three nationwide consumer reporting companies so they can correct the information in your file.
When the investigation is complete, the consumer reporting company must give you the results in writing and a free copy of your report if the dispute results in a change. If an item is changed or deleted, the consumer reporting company cannot put the disputed information back in your file unless the information provider verifies that it is accurate and complete. The consumer reporting company also must send you written notice that includes the name, address, and phone number of the information provider. If you request, the consumer reporting company 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 an investigation doesn’t resolve your dispute with the consumer reporting company, you can ask that a statement of the dispute be included in your file and in future reports. You also can ask the consumer reporting company to provide your statement to anyone who received a copy of your report in the recent past. You can expect to pay a fee for this service.
Tell the creditor or another 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 reports the item to a consumer reporting company, it must include a notice of your dispute. And if you are correct—that is, if the information is found to be inaccurate—the information provider may not report it again.
Reporting Accurate Negative Information
When negative information in your report is accurate, only the passage of time can assure its removal. A consumer reporting company can report most accurate negative information for seven years and bankruptcy information for 10 years. Information about an unpaid judgment against you can be reported for seven years or until the statute of limitations runs out, whichever is longer. There is no time limit on reporting: information about criminal convictions; information reported in response to your application for a job that pays more than $75,000 a year; and information reported because you’ve applied for more than $150,000 worth of credit or life insurance. There is a standard method for calculating the seven-year reporting period. Generally, the period runs from the date that the event took place.
The 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 you sign anything. The law contains specific protections for you. For example, a credit repair company cannot:
- make false claims about their services
- charge you until they have completed the promised services
- 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 terms for services, including their total cost
- a detailed description of the services to be performed
- how long it will take to achieve the results
- any guarantees they offer
- the company's name and business address
Have You Been Victimized?
Many states have laws regulating credit repair companies. In Missouri, the Credit Service Organizations statutes can be found in Chapter 407 of the Missouri Revised Statutes sections 407.635 thru 407.644. State law enforcement officials may be helpful if you’ve lost money to credit repair scams. If you’ve had a problem with a credit repair company, don't be embarrassed to report it. While you may fear that contacting the government will only make your problems worse, remember that laws are in place to protect you. Contact your local consumer affairs office or your state Attorney General (AGs). Many AGs have toll-free consumer hotlines. Check the Blue Pages of your telephone directory for the phone number or check http://www.naag.org for a list of state Attorneys General.
Need Help? Don't Despair
Just because you have a poor credit report doesn’t mean you won’t be able to get credit. Creditors set their own credit-granting standards and not all of them look at your credit history the same way. Some may look only at more recent years to evaluate you for credit, and they may grant credit if your bill-paying history has improved. It may be worthwhile to contact creditors informally to discuss their credit standards.
If you’re not disciplined enough to create a workable budget and stick to it, work out a repayment plan with your creditors, or keep track of mounting bills, consider contacting a credit counseling organization. Many credit counseling organizations are nonprofit and work with you to solve your financial problems. But not all are reputable. For example, just because an organization says it’s “nonprofit,” there’s no guarantee that its services are free, affordable, or even legitimate. In fact, some credit counseling organizations charge high fees or hide their fees by pressuring consumers to make “voluntary” contributions that only cause more debt.
Most credit counselors offer services through local offices, the Internet, or on the telephone. If possible, find an organization that offers in-person counseling. Many universities, military bases, credit unions, housing authorities, and branches of the U.S. Cooperative Extension Service operate nonprofit credit counseling programs. Your financial institution, local consumer protection agency, and friends and family also may be good sources of information and referrals.
If you are considering filing for bankruptcy, you should know about one major change to the bankruptcy laws: As of October 17, 2005, you must get credit counseling from a government-approved organization within six months before you file for bankruptcy relief. You can find a state-by-state list of government-approved organizations at http://www.usdoj.gov/ust/. That is the website of the U.S. Trustee Program, the organization within the U.S. Department of Justice that supervises bankruptcy cases and trustees.
Reputable credit counseling organizations can advise you on managing your money and debts, help you develop a budget, and offer free educational materials and workshops. Their counselors are certified and trained in the areas of consumer credit, money and debt management, and budgeting. Counselors discuss your entire financial situation with you and help you develop a personalized plan to solve your money problems. An initial counseling session typically lasts an hour, with an offer of follow-up sessions.
Even if you don’t have a poor credit history, some financial advisors and consumer advocates suggest you review your credit report periodically
- because the information it contains affects whether you can get a loan or insurance – and how much you will have to pay for it.
- to make sure the information is accurate, complete, and up-to-date before you apply for a loan for a major purchase like a house or car, buy insurance, or apply for a job.
- to help guard against identity theft. That’s when someone uses your personal information—like your name, your Social Security number, or your credit card number—to commit fraud. Identity thieves may use your information to open a new credit card account in your name. Then, when they don’t pay the bills, the delinquent account is reported on your credit report. Inaccurate information like that could affect your ability to get credit, insurance, or even a job.
Sample Dispute Letter
Your City, State, Zip Code
Name of Company
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 investigate this (these) matter(s) and (delete or correct) the disputed item(s) as soon as possible.
Enclosures: (List what you are enclosing)