What Are The Facts About Credit Reports?
You might have heard stories about credit and how credit reports work. There is a lot of good information and just as much bad information out there. It's important to separate fact from fiction. Here are some common myths about credit – and the facts:
Myth: You must give permission for your credit report to be issued.
Fact: Any credit grantor with a permissible purpose may access credit reports without the consumer's permission. Examples of those who can access your credit files are credit grantors, collection agencies, insurance companies, and employers.
Myth: The credit repository or reporting company can deny a credit application.
Fact: Credit repositories and credit reporting companies have no power to accept or deny credit. They only collect and report information.
Myth: After you pay off a debt, it disappears from your credit report.
Fact: A credit report shows the whole credit history on any debt that is reported- all debts – even if they're paid off. The bad news is that negative credit information can stay on your report for 7 to 10 years. But the good news is that credit grantors weigh new debts more heavily than old ones. So, a six-year-old bad debt will count for less than several recent years of good credit.
Myth: You're not responsible for debts on a joint account if you didn't make the purchases.
Fact: On a joint account, both parties are held completely responsible for payments. If you pay your share but the other person doesn't, each of you gets the same negative credit rating. Co-signers, who guarantee loans, are also at risk if the primary person doesn't pay as agreed. That means, if someone has cosigned a loan for you, be sure to pay as promised to protect your credit and theirs!
Myth: A divorce decree separates joint accounts.
Fact: Divorce does not cause anything to happen automatically in your credit report. To protect your credit rating, pay off and close all joint accounts, then reopen new accounts as a single account holder.
Myth: Risk scores have replaced a credit report review.
Fact: Credit reports are still the number one tool used by creditors to determine your creditworthiness. Some credit grantors use "merged credit," which is the combined score from at least two of the credit depositories.
Restoring Your Credit
If you would like to improve your credit score, don't worry. No credit score lasts forever - it changes over time, so you can improve it over time.
Every time you apply for a loan or credit card, use credit, or make or miss a payment, you build another entry in your credit report. You also raise or lower your credit score.
Here are ways you can improve your credit score over time:
Stop spending money you don't have. If you have a budget, stick to it. If you don't have a budget make one.
Make the minimum payments, on time. You can begin to improve your credit rating right away by making at least the minimum payment, on time.
Pay off your accounts. If you have several accounts with small balances, try to pay them off. If you have accounts that went to collection, pay them off as soon as possible!
Limit your credit. It may be tempting to open a new account to pay off other accounts, but it is a dangerous trap that can cost you money and actually hurt your credit rather than help.
Use bankruptcy as a last resort. Filing for bankruptcy can keep you from getting a loan for a long time, raise your interest rates, and stay on your credit record for 7 to 10 years.
Get help from a credit counselor. Free and low-cost help is available.
Fix errors on your credit report. Sometimes, credit reporting agencies make mistakes that can damage your credit record, so it is important to check your credit report at least annually. If you see something wrong on your credit report, fix it immediately .
Fix Errors on Your Credit Report
If you see incorrect information on your credit report, it's possible to fix it. If you find things like misinformation about where you live and payments recorded as late when they were on time, you need to contact the credit reporting company immediately. They are required by law to investigate and correct mistakes.
This is what you can do:
Fill out a dispute form or write a letter to the credit reporting company explaining what's wrong. If there's credit information older than 7 1/2 years and if there's bankruptcy information older than 10 years on your report, it shouldn't be there.
Contact the creditor or merchant who reported the information. They also have legal responsibility to report correct information to the credit reporting agency.
Keep copies of the letters you send the credit reporting company.
Get written verification of the change in the credit account. You should get written verification from the creditor and the credit reporting company that your information will be updated.
Credit reporting companies are required to accept these statements if they're related to incorrect information on your report. They are not required to accept statements that explain why you were late or did not pay, but many will. Keep your statements under 100 words.
For step-by-step instruction on disputing credit report entries and a sample letter, visit the Federal Trade Commission's Credit Errors Web page at:
Find A Credit Counselor
Losing a job, getting hit with unexpected emergency medical expenses, getting a divorce, or simply not managing your money well can all result in credit difficulties. Are you facing any of these situations?
Inability to pay your bills on time and paying late fees.
Difficulty deciding which bills to pay each month.
Using credit for purchases you used to make with cash.
Borrowing money to make loan payments.
Close to or maxing out your credit cards.
Making only minimum payments on your credit cards.
Putting off necessary things like visits to the doctor because you don't have enough money.
Thinking your financial condition is beyond help.
If so, you should talk to a credit counselor. Credit counselors offer confidential budget and debt counseling. They can also teach you about debt repayment programs and money management.
Beware of organizations that promote "easy" debt consolidation programs or offer to "repair" your credit report for a fee. No one can fix your credit but you - over time, with smart financial decisions.
National Foundation for Credit Counseling, a network of consumer counseling agencies. Check the Yellow Pages or visit www.nfcc.org for the office closest to you. You can also call NFCC directly for a referral in Spanish at 1-800-682-9832.
NeighborWorks® America is a national network of nonprofit organizations who support affordable housing and homeownership initiatives in local communities. Check the Yellow Pages or visit www.nw.org for the office closest to you.
HomeFree USA is a HUD-approved, nonprofit homeownership counseling organization, HomeFree-USA is dedicated to helping the people and communities we serve prepare for and achieve mortgage approval and lifelong financial empowerment.
Consumer Credit Counseling Services offer free and low-cost debt management programs across the country.
Local nonprofit homeownership education groups offer classes. Check under "credit counseling" in your local phone book.