Building a Better Credit Record

Everybody has seen them. Newspaper, radio, and TV ads that offer, for a fee, to erase accurate, negative, information in your credit file. They promise to clean up your credit record so you can get a car loan, a home mortgage, insurance or even a job. Don't believe a word of it. The only thing these ads really offer are to take your money and leave you in the same or worse situation than your already in. Only time, effort, and a debt repayment plan can help improve your credit record. This section is designed to help you understand your credit history and offer tips on how to legally improve your credit record.

Consumer Reporting Agencies

If you've ever applied for a car loan, a personal loan, credit card, or insurance, there's a credit file about you. This file will contain all your personal information including where you work, where you live, how you pay your bills, and whether you have ever been sued, arrested, or filed for bankruptcy.

Consumer Reporting Agencies (CRAs) are companies that gather and sell this information. One of the most familiar types 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 Act (FCRA)

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 Frequently Asked Questions about consumer reports and CRAs.

Improving Your Credit Record

The first thing you need to do is get a copy of your credit report. If you have recently been denied credit, insurance or employment because of information supplied by a credit bureau you can request a free copy of your credit report within 60 days of receiving this notice. The company you applied to must provide the credit bureau's name, address, and phone number to you.

Examining Your Credit Report

If you find incorrect information after examining your credit report, (for example, it lists an outstanding debt or debt that has been repaid), there are steps you can take to correct your credit report:

Ask the credit reporting agency for a dispute form or use our sample dispute form.
Submit your dispute in writing, along with any supporting documentation.
Clearly state the disputed amount and your reasons for requesting that it be removed or corrected (you have paid off the debt, you never incurred the debt, etc). You may want to enclose a copy of your report with the items in question circled.
Make a copy for your records and return the form to the credit bureau.
Also be sure to contact the the information provider to notify them you have a dispute.
Send your letter by certified mail, return receipt requested, so you can document what the CRA received.
Do not send them original documents.

The credit bureau will then contact the creditor reporting the debt. By law, any disputed amounts must be removed from your credit report during their investigation, and if the creditor is unable to verify that you are responsible for the debt, the item on your credit report must be corrected or removed from your credit report permanently.

If the new investigation reveals an error, you may ask that a corrected version of the report be sent to anyone who received your report within the last six months. Job applicants can have corrected reports sent to anyone who received a report for employment purposes during the past two years.

Accurate Negative Information

If you have negative information in your credit report that is accurate, only time can assure its removal. Accurate, negative information generally can stay on your report for up to seven years. There are certain exceptions to this rule:

Bankruptcy information may be reported for up to 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 limit.
Credit information reported because of an application for more than $150,000 worth of credit or life insurance has no time limit.
Default information concerning U.S. Government insured or guaranteed student loans can be reported for up to seven years after certain guarantor actions.
Information about a lawsuit or an unpaid judgment against you can be reported for up to 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 took place.

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 File

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 file.