How to establish credit and address problems with your credit report
I wrote to the credit reporting agency and told them there's some wrong information on my file. They wrote back and said the information was "verified as correct" and they're leaving it on my report. What am I supposed to do?
A: Many people wonder how they can get credit in the first place if they need credit history to qualify. Building a solid credit history takes a little time, but it can be done!
First, if you don’t already have one, open a checking and/or savings account. Creditors look at them as evidence that you are able to handle money. You’ll also need a record of stable employment and have lived in your current residence for at least six months.
Next, open a charge account at a local department store or get a gasoline credit card. Use them and be sure to make regular, on-time monthly payments to establish a good credit rating.
Credit is not free, so use it wisely. Read the fine print before you apply for credit and make sure you understand the interest and fees you’ll be charged. Most importantly, don’t charge more than you can handle and make sure to pay on time. In general, you should have no more than 20% of your take-home pay in consumer debt (this does not include your mortgage or rent, but does include your car payment and all other credit.)
A: Every time you apply for credit, the financial institution reviews your credit report. This review is known as a “voluntary" or “hard" credit inquiry. By applying, you authorize the inquiry into your credit; it was voluntary on your part. Any voluntary inquiry can affect your score.
Large numbers of inquiries mean greater risk for lenders. A lot of inquiries is often a sign that someone is having trouble getting approved and is desperate for the credit. In fact, people with six inquiries or more on their credit reports are eight times more likely to declare bankruptcy than people with no inquiries on their reports.
But not all inquiries will affect your credit score equally.
One voluntary inquiry is not likely to impact your score very much, especially if you have a strong credit history.
When shopping for a mortgage or a car, many people apply for several different loans to try to find the best rate. Therefore, a group of inquiries within a short period of time for a home mortgage or auto loan is not counted the same as multiple inquiries for other credit. So, go ahead and shop for that best rate – just try to get your shopping done within a 14-day period.
You may also see many inquiries on your report that you didn’t know about. These are often from businesses who are looking to do some sort of business with you (such as offer you a pre-approved credit card). These types of inquiries, known as “soft inquiries" do NOT count against you.
Ordering your own credit report does not count as an inquiry.
Q: I've reviewed my report and made a list of problems. What's the next step?
A: Once you've reviewed your report and compiled a list of problem areas, there should be a form that comes with your credit report that you can use to tell the credit reporting agency what the mistakes are and ask the agency to fix them. Fill out the form and send it back to the credit reporting agency. (Hint: Be as specific as you can, and make sure you write very clearly. It may even help to type a letter to the credit reporting agency. Remember, somebody at the other end is going to have to read what you wrote and try to understand exactly what the problem is.)
Send your letter to the address provided by the credit reporting agency for disputing information. (Another hint: If you have any proof of your side of the story, include all copies of documentation with your letter to the credit reporting agency.)
Once the credit reporting agency receives your letter, it must:
- Complete its investigation within 30 days of receiving your letter
- Contact the creditor reporting the information you dispute within five days
- Review and consider all relevant information submitted by you
- Remove all inaccurate and unverified information
- Adopt procedures to keep the information from reappearing
- Reinsert the information only if the creditor certifies that it is accurate and notifies you within five days of the reinsertion, and
- Provide you with the results of its reinvestigation, including a new credit report, within five days of completion.
If the credit reporting agency claims that the creditor reporting the information verified its accuracy, contact the creditor. Explain that it is incorrect and demand that it be removed. Creditors who report information to credit reporting agencies must:
- Not report information they know is incorrect
- Not ignore information they know contradicts what they have on file
- Notify credit reporting agencies when you dispute information
- Note when accounts are "closed by the consumer"
- Provide credit reporting agencies with the month and year of the delinquency of all accounts placed for collection, charged off or similarly treated, and
- Finish their investigation of your dispute within 30 days.
If the creditor will not remove the incorrect information, call the credit reporting agency reporting it directly for help using the phone number supplied with the credit report you ordered. By law, each credit reporting agency is supposed to make a toll-free customer service line available for your questions and disputes.
If you get nowhere, you have the right to put a 100-word statement in your file explaining your dispute. Don't always assume that adding a 100-word statement is the best approach. In fact, it's often wiser to simply explain the negative mark to future creditors than to try to explain it in 100 words or fewer. If you do add a 100-word statement, be sure to link it to a specific entry in your credit report so the statement comes out when the disputed information comes out.
A: Truth is that credit card companies want to keep their good customers. With competition so strong among card issuers, it is very expensive for them to get new cardholders. Better for them to hold on to those they already have.
That’s good news for you. If you’re a good customer (that means you have a good credit score and you have you have been using that particular credit card) and you are willing to make a phone call, you may be on your way to a better rate. It doesn't hurt to ask. Tell your credit card company you would like a better rate. Let them know you’ve gotten great offers from other issuers. If you are prepared to close your account and switch to another card, tell them that. To keep your business they may reduce your interest rate.
If you are turned down, ask for a supervisor. Try calling again on another day. There’s no harm in asking and the reward just might be the lower rate you requested.
Q: I wrote to the credit reporting agency and told them there's some wrong information on my file. They wrote back and said the information was "verified as correct" and they're leaving it on my report. What am I supposed to do?
A: When the credit reporting agency gets your complaint letter, they contact the source of the information - the credit card company, bank, or whomever reported that information to the credit reporting agency. They tell the source that you're disputing the information, and ask them to confirm whether it's correct or not. If the source says the information is correct, the credit reporting agency will leave it on your report.
You have two options in that case: First, if you have any proof of your side of the story and you haven't already given it to the credit reporting agency, send them copies and ask them to investigate again.
What you are probably going to have to do, though, is go to the source of the information yourself, and try to get them to remove the information. By law, lenders cannot report anything they know is inaccurate.
So how do you do that?
Start by calling the customer service number listed on your statement or with your loan papers. Explain the situation and ask them to tell you how to dispute it. If the customer service person isn't helpful, ask for the name of the credit manager. Chances are, they'll want you to write them a letter. When you write, send your letter by certified mail, return receipt requested, and keep a copy for your files. Anytime you discuss the matter over the phone, take notes about whom you spoke with, when, and what was agreed.
If that still doesn't work, you may want to write to the president of the company. Your local library should be able to help you track down the information if you have trouble getting it from the customer service department. Again, make sure your letter is clear, to the point, and states exactly what you want them to do. Keep copies for your records.
Q: I'm still trying to get information off my report and I'm getting nowhere. What else can I do?
A: If the credit reporting agency won't change information you think is wrong, you can always add a brief statement of up to 100 words to your credit report. Your statement should state your side of the story. If you have documentation, mention that. Your statement will become a permanent part of your credit file. That doesn't mean that the information you think is wrong will never be counted against you. If your application is evaluated by a computer (as many credit card applications are these days), your statement will likely be overlooked by the computer. But in cases where a loan officer is looking at your credit report, they should take your statement into account.
Q: About four years ago, I had some financial problems and got behind on some bills. But I paid them off a couple of years ago. Why are they still on my credit report?
A: Late payments can stay on your report for up to seven years, even if you paid the bill in full. Some lenders are interested in late payments that are several years old, while others are more concerned with how you've been handling your bills lately and will overlook older negative information.
Q: It's not fair! I'm on top of my finances now and I don't think the past should count against me for seven years.
A: It's understandable that you want your credit report to be judged on how you're doing now financially, rather than what happened several years ago. While some lenders will be more than happy to lend you money now as long as you are caught up, others may decide it's too risky. Just keep trying to build positive references so that when you do apply for loans, your credit report will show that you can handle your bills.
Q: What about these companies I read about that say they can fix bad credit - even bankruptcy? Can't they get information taken off my report?
A: Wouldn't it be great to be able to wipe out the past and start over again? Unfortunately, that's what these companies prey upon - the desperate hopes of people who just want a fresh start. Credit repair companies, or credit clinics, often charge steep fees, but they can't do anything you can't do on your own.
Their usual strategy is to dispute correct, but negative information over and over, hoping that some requests will fall through the cracks and will not be verified. If a credit reporting agency fails to verify information you dispute, they have to remove it from your file. The problem is that credit reporting agencies can refuse to investigate repeated disputes if they think you're working with a credit clinic. Also, they can put the information back on your file if it's later verified as correct. Most people who hire credit clinics to clean up their credit reports pay a lot of money and get little for it.
Don't confuse credit repair companies with non-profit credit or debt counseling agencies that work with consumers to help them pay back their debts. If you can't keep up with your bills, one of these agencies may be able to help. See Union Plus Credit Counseling for more information.
Q: I've had a lot of problems straightening out my credit report. I really feel like I've been getting the runaround from the credit reporting agency. What can I do?
A: First, you can blow off some steam by filing a complaint with the Federal Trade Commission (FTC). The FTC collects complaints about credit reporting agencies and, while they don't get involved in individual cases, they will investigate if they notice a pattern of complaints about a particular company. You can file a complaint online at www.FTC.gov or write to: FTC, Credit Practices Division, Washington, D.C. 20580.
Your state or local consumer protection office may be able to help you. Look in the government pages of your phone book or visit ConsumerAction.gov to find your state consumer protection agency.
You may want to talk to an attorney. Union Plus offer a legal services program that entitles you to a free consultation with an attorney in your area and discounted rates if you decide to pursue the case. For the name and phone number of an attorney near you, click here.