CHAPTER 18
Protecting Your Credit Reports
To SAVE BIG on credit, the first thing you need to do is order your credit reports regularly. Here’s why: The information in your credit report makes or breaks whether you can get loans and how much you will pay for them. Unflattering errors in your reports cost you money. Shoot down those errors and you will SAVE BIG.
I am always shocked at how many savvy, sophisticated people have never laid eyes on their own credit report. An acquaintance in her 40s, name withheld to protect the ignorant—I mean innocent—just asked me how to order a credit report the other day. Hey, it’s a start. According to the National Foundation for Credit Counseling, only 34 percent of the population orders their credit reports each year. Amazing, given that it’s free. Normally we love free stuff.
In this chapter, learn to SAVE BIG by:
• Ordering your credit reports strategically so your identity is protected year-round.
• Scanning for the most critical errors on your credit report and going to war over them.
• Understanding how the credit report dispute process is supposed to work—and how it really works.
• Taking a little- known step that prevents crooks from opening accounts in your name.
What Is a Credit Report, Really?
Have you ever Googled yourself to see if there’s anything floating around about you on the Web? It’s fun, in a queasy-curious kind of way, right? Ordering your credit report is the same—except that it matters. “Sticks and stones may break my bones, but words will never hurt me”—unless they’re in my credit report.
Your credit report is like a record of all the gossip about you, but in this case it’s what people are saying about your finances. (And, like gossip, it is often inaccurate and unflattering.) In the case of credit gossip, the town tattlers are the big three credit bureaus:
They talk about where you live, where you work, and, most of all, how you manage your money. They know about every bank account, credit card, mortgage, and car loan you have. And they tell people whether you pay those bills on time. Bankrupt? They’ll gossip about that for 10 years.
Yet the credit bureaus themselves don’t make decisions about whether to loan you money or how much interest to charge you. They are simply conduits who receive information from companies you do business with, organize that information, and make it available to others.
These days, in addition to banks and credit card companies, you can expect landlords, employers, cell phone companies, department stores, car dealerships, insurance underwriters, student loan programs, and the government all to look at your credit reports to get a sense of your reliability. So don’t you want to know what’s in that report?
Getting Your Credit Report
The big three credit bureaus are all now required by law to provide you a free copy yearly of the report they have compiled on you. The government set up a website with the not-so- intuitive Internet address of
www.AnnualCreditReport.com, where you can access your report.
Beware of Fake Credit Report Sites
Beware of copycat websites run by private companies that claim to be free but aren’ t. They have more obvious names than the government credit report site and they snare people, then market expensive, unneeded financial products to them. The poor Feds tried to counteract this by creating clever musical TV commercials about the real site,
www.AnnualCreditReport.com. So what did the copycats do? They spoofed those, too.
A good technique is to order one of your free reports every four months, so that you are monitoring your credit year-round to guard against identity theft. For example, you could stagger your requests, ordering from Equifax in January, Experian in May, and TransUnion in September. In addition, it’s especially important to review your credit reports before a big purchase to make sure there are no inaccurate entries that will hurt your chances of being approved.
If you are turned down for a loan, you’re entitled to a free credit report at that time. The institution that told you no is required to list the reason for your rejection plus the name of the credit bureau it used. You then have 60 days to request your free report.
You can also qualify for a free report if you believe your file is inaccurate due to fraud. If you want to pay for reports in between freebies, it will only cost you about $10 for each one. Just be sure to order only the report unless you want to pay the credit bureaus more for other bells and whistles.
Soft Inquiries Don’t Hurt You
Many people worry that when banks check their credit reports to consider offering them a credit card, those inquiries hurt their credit rating. It’s a myth! Those are called soft inquiries because you have no control over them, and they are harmless. Only hard inquiries, where you actively apply for credit, have an impact on your credit rating. So don’ t apply for several credit card accounts in a short time.
Lies, Damn Lies
As many as 79 percent of credit reports contain erroneous information, according to a study conducted by the U.S. Public Interest Research Group. Nasty, negative, harmful information. That is a sobering statistic, since your credit report is the foundation of every move you make financially. As a journalist, if I say something derogatory—and inaccurate—about somebody, I can be sued for slander. But decades ago, Congress granted the credit bureaus immunity from such claims. I can see why, because a free flow of credit histories is essential to our economy, but it certainly doesn’t give the bureaus the maximum motivation to ensure accuracy.
The first time I ordered my credit reports years ago, they were thick with errors. For example, the same credit card was listed three different times—so it looked like I had triple the debt that I really did. I filled out dispute forms and got the credit bureaus to correct my record. Then, when I ordered my reports again a year later, some of the same errors had resurfaced. Argh! I filed disputes again and it worked the second time.
How Does It Happen?
It’s easy to see how mistakes happen. After all, the credit bureaus take in more than two billion new pieces of information every month. That’s why I think it’s helpful to know the most common credit report mistakes. Following are the top three errors that may occur, according to a study by the National Consumer Law Center:
1. Mixed or merged files. Your report may be combined with somebody else’s, often because of similar names or birth dates. And, sorry to say, I’ve never heard of somebody lucking out and seeing their credit rating soar after learning their report was mixed up with Warren Buffett’s.
2. Identity theft. This is the second largest source of mistakes, since crooks create accounts in your name and don’t pay those bills. Because they are pretending to be you, their debt becomes your debt.
3. Furnisher errors. Furnisher errors are number three on the list: mistakes inserted into your record by the banks and businesses that report information about you.
Which Entries Should You Dispute?
The following are the most damaging types of entries that are worth going to war over because they can lower your credit score, which is based on your credit report.
• Old bankruptcies. Bankruptcies remain on your report for 10 tough years. If a bankruptcy entry is still there after that, complain.
• Debts disposed of in bankruptcy. If you declared bankruptcy in the past, debts covered by that bankruptcy settlement should not appear on your report as past due or still payable because bankruptcy wipes the slate clean.
• Outdated lawsuits and judgments. If you paid a legal judgment, it should not be in your records anymore. If you didn’t pay, it’s still supposed to disappear after seven years.
• Inaccurate tax liens. Tax liens you have paid remain on your report for seven years. Unpaid ones last 15 years, longer than anything else. (Guess who makes the laws!) If there’s a lien on there for longer than those two parameters, dispute it.
• Outdated demerits. Late payments and charge-offs, where a creditor writes your bill off because they have given up on you, are not allowed to remain on your report after seven years.
• Duplicate debts. The same debt should not be listed more than once, particularly by more than one debt collector.
• Your spouse’s bad debts. If your spouse failed to pay bills before your marriage or after your official divorce, as long as your divorce filing was handled properly, these should not be on your credit report.
• Other people’s accounts. Other people’s account information—good or bad—should never appear on your credit statement. A cynic might say to keep the stranger’s entries if they are positive, but who’s to know when that person will face a financial crisis that will ruin their credit—and yours.
• Old credit applications. Hard inquiries, where you apply for credit, count against you. They shouldn’t remain on your report for more than two years.
• Credit you didn’t apply for. If you spot hard inquiries that you didn’t authorize, dispute them. Soft inquiries, where banks check your credit report in order to offer you a preapproved card, are harmless. Checking your own report is also harmless.
Disputing Errors
If you find mistakes on your credit reports, fight to the finish or you could be finished financially. It’s time to go into pit bull mode, lock your jaws on the problem, and don’t let go until you have won. Sound intense? I mean it. I’m not asking you to pack your lunch every day, or turn the lights off when you leave the room, but you must fight for your good credit. Unlike those Small Stuff Savings measures, good credit saves you tens of thousands of dollars.
Basic Method
When you find an error on your credit report, the big three bureaus ask that you fill out a dispute form on their websites. Hopefully that alone will take care of the problem, but if you’re trying to prove a crucial point—like that you never made a late payment—you should take the additional step of providing documentation that proves your case. Do whatever it takes to get your hands on that documentation.
Under the Fair Credit Reporting Act, the credit bureau has 30 days to research your claim and get back to you. If the original bank or business that reported the false item can’t prove it is true, the bureau is supposed to correct it.
If a creditor wants to reinsert negative information into your file later, the bureau is supposed to require that creditor to certify that the negative entry is accurate. The bureau is also supposed to give you a toll- free number where you can call to dispute the reinsertion. This is where the process starts to sound ridiculous. I mean, where does it end? Will they re reinsert the item you have recorrected?
If the credit bureau decides that you didn’t make your case—initially or after the reinsertion—the next step isn’t very satisfying. You’re allowed to write a 100-word statement, which will be attached to your credit file, explaining the inaccuracy. To give you a feel, this paragraph you’re reading contains about a hundred words. It’s not much. The bigger problem is that many businesses considering you for a loan never actually read your credit report anyway. They just look at the three-digit credit score that is derived from it. So they’ll never see your carefully crafted statement.
I have personally seen the basic credit report dispute method work beautifully. But it can get ugly. You can’t sue a credit bureau for libel, but you can sue for negligence. That’s what Judy T. of Oregon did. It took her six years to get one of the big three bureaus to remove another woman’s atrocious credit history from her file. Judy and her evil financial twin had similar names, the same birth year, and social security numbers that were off by just one digit. Judy even persuaded the other woman to call the people at the credit bureau and alert them that the bad accounts were not Judy’s! None of it worked. Judy was eventually awarded $1.3 million in damages by a court.
Beware of So-Called Credit Repair
If there are unflattering entries in your credit report and they are true, there is no legitimate way to remove them. Late payments, lawsuits, and judgments stay on your report for seven years. Bankruptcies are reported for 10 tough years. So-called credit repair businesses that claim they can remove these accurate items are a scam. They charge big bucks up front and either do nothing or take illegal steps that can get you in trouble. Don’ t fall for it!
Advanced Method
Not every case is as alarming as Judy’s, but the National Consumer Law Center (NCLC) says it found serious problems when it studied how credit report disputes are handled. The credit bureaus have to deal with vast swaths of data. The NCLC says one way they cope is by boiling information down to numerical codes. So, though you may send in reams of paperwork showing you have always paid your bills on time, your argument can get lost in the automation process. Your detailed dispute might simply be coded “not his/hers.”
The bureau then dutifully runs this oversimplified explanation by the creditor who said bad things about you in the first place, and that company stands its ground. It becomes a “you said, the bank said” situation. And remember, the bank is the bureau’s customer, its source of revenue. You are not.
What do you do? First, don’t use the bureau’s online dispute process for serious inaccuracies. The NCLC says that makes it too easy for the bureaus to collate and categorize your complaint. So go retro. Call the bureau, speak to real human beings (they are required by law to have such people), and keep detailed notes of their names and the dates of your calls.
Next, write a letter. In the letter, state what is wrong with the report and, exactly what you want the bureau to do about it: Delete it? Correct it? Modify it? Reword it? Use the account numbers listed on the credit report, to make it easier for the bureaus to identify which line items you are disputing. This may not be the same account number in your own records, perhaps because the account has been reported (wrongly) to a debt collector who has assigned it a new number. To make yourself crystal clear, also enclose a copy of the actual credit report and circle the items in question.
Send your complaint via snail mail—return receipt requested—with every scrap of proof you can muster. Of course, you will want to attach copies (not originals) of any documentation that proves your case.
Mail the whole fat packet to the businesses that furnished the inaccurate information about you, as well. The federal government seems to be moving toward a system in which consumers will be able to challenge companies directly. You are putting those companies on notice that you are ready to fight.
Be sure to keep a copy of this letter for your records. You are starting an old-fashioned paper trail that will help prove the bureau failed to take specific corrective steps. You never know, you may need to show this paper trail to government watchdogs or a jury some day.
Calling Your Creditors May Be a Shortcut
True, the government has set up this circuitous system where you approach the credit bureaus and they approach the creditors, but try calling creditors directly yourself as well. Ask to speak to a supervisor. Explain the situation and fax or e-mail paperwork that proves the negative information the company is reporting about you is wrong. If the supervisor sees the light, ask for a correction and a letter acknowledging the error. Keep that letter forever. Seriously.
Don’t forget to send your packet to every bureau that is reporting the erroneous information about you. Solving your problem at one does not help you with the others. They do not routinely share information. I dug up the physical mailing addresses of the big three credit bureaus for you, so you won’t be stuck using only their automated online dispute systems. Here they are:
•
Equifax P.O. Box 740256
Atlanta, GA 30348
(800) 685-1111
•
Experian P.O. Box 2104
Allen, TX 75013-2104
(888) 397-3742
•
TransUnion Consumer Disclosure Center
P.O. Box 2000
Chester, PA 19022-2000
(800) 916 8800 or (800) 888-4213
Taking It to the Next Level
If you get no satisfaction on your own, the Federal Trade Commission (FTC) is the agency tasked with enforcing the Fair Credit Reporting Act and making sure credit bureaus respond to consumer complaints of inaccuracy. Unfortunately, the FTC does not resolve individual consumer matters, but it does collect them and take legal action when it sees a pattern of incompetence or corruption by a company. Here’s the FTC’s contact information should you need to escalate your complaint to the next level:
• Consumer Response Center
CRC-240
Federal Trade Commission
Washington, DC 20580
(877) 382 4357
Why You Should Fight
Here’s why it’s worth it to fight to the finish and get your credit reports corrected. Errors on your reports—including an identity theft—can, in turn, drag down your credit score. (For more on the relationship between credit reports and credit scores, see Chapter 19.) It happened to Kerry O. of New Jersey. Her financial identity was stolen, the black mark showed up on her credit reports, and that killed her credit score.
When she went to get a $200,000 mortgage, Kerry learned the hard way that negative credit reports cost you money. How much money? Before correcting her credit reports, she could only qualify for a mortgage rate of 8 percent. After correcting them, she qualified for a mortgage at 5 percent. Here’s how much money Kerry saved by sticking with it and getting her reports corrected:
Clearing Up Kerry’s Credit Report| Mortgage payment @ 8% | $ 17,616/year |
| Mortgage payment @ 5% | 12,888/year |
| BIG SAVINGS = | $ 4,728/year |
If Kerry had not gotten her report corrected she would have had to pay nearly $5,000 extra a year for her home. Over the life of her 30-year mortgage that would add up to $141,840—a terrible price to pay for things that are not your fault.
Stop the Madness
You can stop those preapproved credit card offers that flood your mailbox. The big three credit bureaus give you the choice of saying “No thank you” for two years or for life. You will have to provide your Social Security number and some other basic information to opt out. I did, and it is dreamy! You can sign up at
www.OptOutPrescreen.com or call (888) 567-8688.
Protecting Your File Going Forward
Most credit report errors are the result of accidents or incompetence, but some are intentional, malicious, and criminal. I’m talking about identity theft. If a crook gets your credit card number or your bank account information and makes charges to your existing accounts, it is just basic theft. It’s like having your wallet stolen. It’s a hassle to set the record straight, but the banks will make you whole pretty quickly.
But when crooks create new accounts in your name, charge them to the hilt, and then abandon them, that is true identity theft and it is devastating. Many victims have a hard time persuading banks that the accounts are not theirs. Often local authorities won’t take a police report, believing, wrongly, that it is a civil matter.
Fortunately, the credit bureaus now offer consumers a tool to combat identity theft. It was a long time coming because this tool makes it harder for banks—the credit bureaus’ paying customers—to access people’s reports, but here it is.
Requesting a Security Freeze
If you really want to safeguard your credit file, consider a security freeze, your right under the Identity Theft Protection Law. Prospective creditors are barred from even looking at your file unless you open it for them. They can’t get your credit score, either. (Banks and businesses with which you have an existing relationship still have access.) This prevents identity thieves from opening accounts in your name because banks won’t establish new accounts without a credit check.
I did a sinister two-part series for World News with Charles Gibson in which we went into the Internet underworld where thieves buy and sell people’s financial identities. The going rate for a credit card number on the black market was just 40 cents! The underground chat rooms are fast and furious, almost like a stock exchange. I communicated with some identity thieves via instant messaging, and some even sent me free samples to prove they had the goods. Andy G. of California was disbelieving—and devastated—when I called him up to warn him that I had been given his credit card number as a free sample.
As you can imagine, I froze my credit reports after doing that scary report. A security freeze is unparalleled protection, but kind of a pain to do. Two of the three credit bureaus made me apply for the freeze via U.S. mail rather than online. And they can charge a small fee, if it’s allowed by the state where you live.
Now when I want to refinance my mortgage or apply for a new loan, I have to unfreeze my credit first. That’s not been so bad. Each bureau gives you an account number and a secret password to use and then you call a special toll-free number to unfreeze your file. It’s instantaneous once you place the call. One bummer: I recently tried to check my own credit reports online and they wanted me to call and order them instead.
To read each bureau’s rules and regulations for freezing your credit, go to their websites, listed earlier. I also provide direct links to the security freeze pages of their sites from my website,
www.ElisabethLeamy.com. Place a security freeze on your credit reports to protect yourself from identity theft.
BIG TIPS
• Dispute errors ferociously in writing and send via snail mail.
• Mail your dispute to the company that reported the inaccurate information about you, too.
• Place a security freeze on your credit reports to protect yourself from identity theft.
