What the credit bureaus don’t want you to know

The Adversarial Nature of the Credit Bureaus

 

 

Its sad but its true.  Every day across the United States a business owner, like yourself, is turned down for an Unsecured Business Line Of Credit, a Business Credit Card or a Business Loan because of a blemish on their credit -a blemish that might not even be your fault!

 

Most people with bad credit arent deadbeats trying to avoid their bills, so why are they suffering the same embarrassment as the people who are? Its not fair. Sometimes things happen that we have absolutely no control over, but we still have to live with them. Fortunately, theres hope. If you know how the credit system works you can learn how to make it work for you. Can you imagine being able to make what is unofficially the most powerful system in the country work for you? If you know the secrets, you can do precisely that.

 

I’m now going to introduce you to some of the best kept secrets of the credit community and put you on the course to having great credit. Your credit score is going to be an essential factor in the decisions you make and the decisions that are made for (and about) you, and your company, in the future. The credit bureaus are going to be a necessary evil that youre going to have to deal with every day for the rest of your life.

 

The Credit System

 

The way society is set up, your value as a human being is determined by the type of credit file you have. Isnt that sad? If you have a good credit report youll be able to enjoy a life of easy living. Youll never have to struggle for a loan, credit card offers will roll in on a daily basis and you will never find yourself wondering whether or not your credit is going to stand between you and the things you want to do.

 

On the other hand, if your credit is less than perfect youre going to find yourself at the bottom of the food chain. A bad credit score, which will be explained in greater detail a little later, will force you into paying higher interest rates, make creditors reluctant to extend you a line of credit and may even stand between you and the job that you want.  Many companies use your credit score as a yardstick to measure how responsible a person you are before offering you a position. 

 

What makes this truly difficult is that it doesnt take much to throw off your credit score, especially if you dont have much credit to begin with. A layoff, unexpected medical bills, an illness or a divorce can cause you to be late making your payments or even miss some here and there.  And really, when you have to choose between making your credit card payment and paying for your childs medicine, which one are you going to do?). These events arent your fault, but they can sink your credit faster than the iceberg that sunk the Titanic.  And then they throw in the real clincher. Despite what many people may think, it isnt the government that dictates what your credit score is going to be. The credit bureaus are judge, jury and executioner all on their own. Oh, sure, they have guidelines they have to follow just like everyone else. They cant leave items on your credit report longer than seven years, and bankruptcies have to come off after ten. That means that your mistakes cant destroy you for the rest of your life but it can sure feel like it!

 

Everyone Makes Mistake

 

And just when you thought it was safe to relax, the next piece of shocking news hits the press-85% of the U.S. population has an error on their credit report. Yet do you think your creditors take this into account when theyre looking at your credit file? Absolutely not! You are guilty until proven innocent! You have no chance to confess or deny a blemish on your credit report before it hits the airwaves and goes out to all of your creditors, and you have to prove, beyond a shadow of a doubt, that the information on your file is incorrect before they will remove it!  How do you like that?

 

The credit bureaus are in business to make money, and because of that theyre going to post your credit information for your creditors (who pay them to see it) before you can do a thing to stop the process.  Its your credit, but you dont fit into the credit system at all!

 

Ten Favorite Myths About Your Credit Report

 

Now that youve been introduced to the credit system youre probably ready to throw your hands up in the air and call it a day. Dont do that quite yet. It is possible to fix the little blips on your credit report, but there are a few things you need to know first. Lets start by debunking the ten most common myths you hear about your credit report.

 

Myth #1: Credit Bureaus are empowered with some kind of governmental authority.

 

Fact: Credit Bureaus have no legal authority at all. They arent a government agency, just a private company in the business of selling information.

 

Myth #2: The credit bureaus are required by law to keep derogatory items on your credit report for 7 to 10 years. 

 

Fact: There is no law requiring the credit bureaus to report anything on you at all. There is, however, a law known as the Fair Credit Reporting Act that requires these companies to remove all derogatory items older than 7 years. (10 years in the case of bankruptcy).

 

Myth #3: Some types of negative listings, such as bankruptcies and foreclosures, are impossible to remove. 

 

Fact: Like we mentioned in Myth #2, everything comes off your record sooner or later. There is no type of negative listing that hasnt been removed from a credit report a thousand times. Some black marks might be harder to erase than others, but that has more to do with the way the credit bureaus work than with the actual problem.

 

Myth #4: The information on your credit report cannot be changed. 

Fact: It is REQUIRED that items that are too old, are inaccurate or cannot be verified in a timely manner be removed from your credit report under the Fair Credit Reporting Act.

 

Myth #5: It is illegal or immoral to have the information on your credit report altered or removed. 

 

Fact: Okay, who started this one? If you cant have your information changed, whats the point of having the Fair Credit Reporting Act in the first place? You ABSOLUTELY can change the information on your credit report! If you couldnt you would be completely at the mercy of the credit bureaus. What a disaster that would be.

 

Myth #6: Paying a past due debt removes it from your credit report.

 

Fact: Paying an old debt doesnt change or erase the fact that at one time you werent paying on it as you had agreed. Fortunately, this can be changed.

 

Myth #7: Inquiries are not derogatory and will not affect your credit standing and score. 

 

Fact: Anything that erodes your financial credibility is going to hurt your credit standing. One or two inquiries arent going to hurt you (fortunately, since it seems like everyone wants to check your credit report these days), but more than that make it look like youre desperate for credit-and your creditors are going to want to know why.

 

Myth #8: If you get a derogatory item removed, it will just come back. 

 

Fact: This one has been cleverly and slyly spread by the credit bureaus through the media and government regulators (at least, the ones who dont know any better). The truth is that the credit bureaus will temporarily delete a negative listing if they havent heard back from the credit grantor after approximately 30 days. If the credit grantor is slow reporting, but eventually reports that yes, the negative listing is correct, the credit bureaus will reinsert this. This is a process known as a soft delete.

Remember, however, that you can challenge a listing on your credit report at any time. The responsibility for keeping the information on your credit report accurate and up to date is completely on you, as the consumer.

 

Myth #9: Disputing your report is easy, and any consumer can do it himself for the price of a few postage stamps. 

 

Fact: Yes, disputing your credit report is easy. Courtesy of the Internet, you dont even have to pay for your stamps-the major reporting agencies will let you do it from their site for free! Getting results, on the other hand, is amazingly difficult, complex and infuriating. The Federal Trade commission gets more complaints per year about credit bureaus than any other business in the United States. This isnt a coincidence!

 

Myth #10: When I pay off a past-due account, such as a charge off or collection, it will show paid and will no longer be negative. 

 

Fact: This is a Catch-22 of epic proportions. It is practically impossible to restore your credit without somehow satisfying your outstanding debts, but paying off a debt actually hurts your credit more than it helps it. Negative credit is allowed to stay on your credit report for a maximum of seven to ten years, a clock that starts ticking on the date of the last activity on that account!

 

Lets say that you have an outstanding medical bill from six years ago that you finally pay off. You think that it should be coming off of your credit report…its paid, and your seven year deadline is coming up. Youre safe either way, right? Wrong. The day you pay off that bill you reset the clock.  That means seven years from the day you pay that bill off its going to be sitting on your record. That black strike will be against you for thirteen years! Unfortunately, it doesnt always pay to be honest. If you have outstanding debt it is almost always prudent to seek professional help to settle your debts without further damaging your credit.

 

What do You Need To Know About The Credit Bureaus

 

Before you can get started cleaning up your credit you have to know who youre going to be dealing with. There are three major credit bureaus, Equifax, Experian (TRW) and Trans Union, and there are over 2000 smaller ones with offices in every medium size city in the United States. Heads up! These credit bureaus dont all work together, and not all lenders work with all of these companies. Dont be surprised to find that even among the big three there are major discrepancies in your credit report. It all depends on who theyve been talking to.  These credit bureaus are all private agencies in the business of storing the information reported by your creditors, which they will, in turn, sell back to these creditors when theyre looking for potential clients for credit cards, loans, etc. The more information these credit bureaus can collect on each individual, the better off theyre going to be.  The question that most people ask when it comes to credit bureaus is, where do they get their information?  There are three major sources that the credit bureaus use to gather your credit information:

 

1) Subscribers: Subscribers are the people who grant you credit, like VISA, Mastercard, Discover, Savings and Loan companies, large department stores, oil companies, etc. The credit bureaus cut a deal with these companies to keep them informed of everything that goes on during your business dealings with them, which is why things like late payments pop up almost before the payment is actually late.

Although most subscribers update the credit bureaus every thirty days there is no standard reporting date. One company may choose to notify the credit bureaus on the first, others the third, others the twenty fifth. These subscribers only have one thing in common-many times, they make mistakes.

 

2) Public Records: There is no privacy when it comes to your public records. Theres a reason theyre PUBLIC records-anyone can see them! These records include judgments, bankruptcies, tax liens, divorce settlements, satisfied judgments, satisfied liens, wage attachments and notices of default properties. In other words, if your ex-wife takes you to court for being late on your child support, the credit bureaus are going to know about it!  The trouble with public records is that the agencies in charge of keeping track of them are all too happy to let a credit bureau know when someone has fallen behind, but theyre a little slower when it comes to letting them know when the account has been brought back up to date. In other words, it doesnt happen! These negative records have a severe impact on your credit report, so if youve had a court ruling thats impacting your credit report its vitally important to make sure its removed when it has been satisfied.

 

**Missing Information: Youll notice as you go through your credit report that there is often missing or inaccurate information. As we mentioned earlier, not all creditors report to a particular credit bureau. It would be much easier if they did! The bad news is that your good credit from small creditors (like a small, local store) isnt going to appear on your credit report. The good news is, money talks. For a fee you can list this good credit on your report, regardless of which credit bureau you are looking at.

 

FAQs About Your Credit Report

 

1) What is a Credit Report?

 

Your credit report details your credit history as it has been reported to the credit reporting agencies by companies that have extended you credit. Phew! Did you catch all that?

 

2) What Kind of Information is on Your Credit Report?

 

Your credit report is going to list what types of credit you use, the length of time your accounts have been open and whether or not youve paid your bills on time. It tells lenders how much credit youve used (in other words, they see the balance on your credit cards and accounts) and whether or not youre seeking new sources of credit.  If there is any history of late payments, or if the loan or line of credit was included in a bankruptcy, charged off or put into repossession, its going to show up on your credit report.  Your creditors are also going to see whether you have had any bills put into collections (this includes medical bills, unless you have already established a plan for payment).

 

3) How Much Credit Does It Take for Me to be Denied Credit?

 

Unfortunately, just about anything negative is going to seriously impact your ability to get credit. One late payment can become a HUGE obstacle in your way. Its best to just keep your credit report squeaky clean.

 

4) How Long will Information Stay on Your Report?

 

As we mentioned earlier, there is no minimum time frame that an item will stay on your credit report. Per the Fair Credit Reporting Act most negative items have to be removed within seven years, bankruptcies within ten. Inquiries only stay on your report for two years before being deleted. (Excessive inquiries on your report can short circuit your loan efforts with any lender, however, so be careful when .shopping. for credit.)

 

5) Who Looks at Your Credit Report?

 

The answer to this is pretty much anyone that might grant you credit. With the passing of each year your credit report is used more and more often as a yardstick to measure your character. Every creditor is going to want to see at least one of your credit reports before granting you credit, and its becoming increasingly common for insurance companies, apartment complexes and employers to check your credit before making a decision about your eligibility.

 

6) What Can You Do About Inquiries on Your Report?

 

Excessive inquiries on your credit report can short circuit your efforts with any lender, because it looks like youre trying too hard to get credit-and theyre going to wonder why. The good news is all the people who check out your report are going to be listed for the next two years, so there shouldnt be any surprises. Some of them may only be listed as letters and numbers (which means youre going to need to ask the credit bureau to verify their names for you) but others will have not only the company name, but the phone number you can reach them at to find out why theyre looking.  It is a very common practice when making a big purchase, like a car or a home, for a lender to run a credit report from 10 different finance companies. After all, their time is important too!  They dont want to waste it showing you cars and houses when you wont be able to get the financing you need to afford them. If the lender cant get you approved for anything hes going to move on, leaving 10 different inquiries in his wake.  When the number of inquiries on your report starts to become a problem you can dispute the fact that you authorized a particular creditor to check your credit report, taking care of anonymous inquiries from various lenders just looking for a good sucker to add to their mailing list. (Fortunately, most of these are listed separately on your report, so lenders know when theyre looking where youve applied for credit and where youre just one of thousands.) If a creditor cant provide verification that you gave them the OK to look at your report, they have to remove the inquiry. The good news is, most creditors are lazy. Rather than dig through their records to find out whether you gave them permission to look, unless theyve actually extended you a line of credit theyre probably just going to take it off without any further effort on your part.  You can also dispute inquiries directly with the credit bureau, forcing them to justify whether or not they had a legitimate reason to give your personal information to Company X. If they cant provide that information, you can force them to remove it.

 

Getting Your Free Annual Credit Report

 

Another thing the credit bureaus love to not tell you is that every American is entitled to a free copy of their credit report every year courtesy of the 2003 Fair and Accurate Credit Transaction Act.  Equifax, Trans Union and Experian are all required to provide consumers (upon request) a free copy of their credit report once a year from a centralized source, which includes a web site, a toll-free telephone number and a postal address.  These reports used to cost as much as $9.50 apiece, so you can imagine why the credit bureaus drag their feet letting consumers know they can have them for free!

 

The credit bureaus arent going to automatically send you your report every year. As always, its going to be up to you to take the initiative. You can get your copy of your free annual credit report by:

 

a) Going online to www.annualcreditreport.com, the only authorized online provider who will give you your annual report for free. (Be careful when youre typing in the URL-there are some sites out there that have very similar spellings, and theyll try to make you pay for your report rather than giving it to you for free.)

 

b) Calling 1-877-322-8228

 

c) Downloading the form from https://www.annualcreditreport.com/cra/requestformfinal.pdf and sending it via snail mail to:

 

Annual Credit Report Request Service

PO Box 105281

Atlanta, GA 30348-5281

 

You can either order all three credit reports at one time or space them out throughout the year (which is a great way to keep an eye on your credit). Be sure, however, that youre ordering from a centralized agency rather than directly from the credit reporting agencies. The agency is going to charge you unless you fit another criteria for a free report.  The good news is that this law didnt eliminate any of the other reasons you would be eligible for a free report. If youve been denied a loan, insurance policy or job based on your credit report, or youre applying for unemployment or receive public assistance, youre entitled to see your credit report

without having to pay a dime.  Despite the fact that they dont want to do it, the FTC requires these agencies to make the process of obtaining a free credit report as simple, uncluttered and minimally intrusive as possible (which means theyre only allowed to collect as much personal information as is necessary to process your

request).

 

The DOs And DON’Ts Of Disputing Your Credit Report

 

I think weve already firmly established the fact that credit bureaus make mistakes, that the information they list is not always accurate and that it is up to you, the consumer, to look over their shoulder and protect your good credit. Its sad, but its true.

The question is, how do you dispute a credit report? Is the procedure the same for all disputes?  Disputing a credit report is actually incredibly easy. Its actually getting them to make the change thats not! Most credit bureaus have a website where you can dispute an item on your report, and they have X amount of days to respond to that. There are, however, a few Dos and Donts you need to know before tangling with the credit bureaus:

 

· DO use your own paper or the dispute forms that come with your credit reports or can be obtained online at each bureaus website if you cannot dispute it electronically.

· DON.T send mail by Certified Mail.

 

· DON.T use legal language

 

· DON.T apply for credit during the dispute process. This could undo anything that youve gained up to that point.

 

· DON.T call the credit bureaus for any reason! You have no way to prove these

conversations ever happened if you have to fight a legal battle. Always correspond through the mail, and make copies of everything you send them and/or they send you.

 

· DON.T threaten the bureaus. They know they have to follow the law when it comes to disputed items on your credit report. Threats from you arent going to make anything happen any sooner.

 

· DO be patient, and DONT give up! Millions of people have had negative items removed from their credit reports. You can too.

 

The Federal Trade Commission

 

The Federal Trade Commission (FTC) is the organization responsible for correcting any credit report problem the credit bureaus cant (or wont) straighten out on their own. You are always welcome to write the nearest FTC office or lodge a complaint with them. Dont expect them to take an active interest in your case unless there have been many complaints, however. They are there only to monitor the credit bureaus, and it can take a ridiculous amount of time before they respond. Even if

Youve written the FTC, keep trying to work it out with the credit bureau.

 

Your Credit Score

 

Your credit score is the three digit number that creditors use to determine if you are worthy of their services-literally. If you dont have a credit score of at least 600 you are going to be denied credit straight across the board, and having one under 700 or 750 may stick you with exponentially higher interest rates than your credit savvy counterparts. Did you know you could be a high-income earner, pay your bills on time and never have an account go to collections, and still have a low to average credit score? It happens every day to hundreds of people across the U.S. Why? Because were being judged by how we play the credit game when no one has ever bothered to teach us the rules.  When people talk about your credit score they usually have your FICO score (a scale developed by the Fair Isaac Corp.) in mind. This is an algorithm that I cant even begin to explain to you that they use to determine your score, and it yields a number between 300 to 850 that creditors use to assess how risky it is to lend money to you.  The definition of good credit and bad credit varies from creditor to creditor, and each has their own definition. If youve got a score of 770 or above you can safely assume youre in the top tier, and unlikely to have problems getting credit.  Your FICO score is THE MOST WIDELY USED credit score in the United States. Just about every creditor you will ever run into is going to use your FICO score to make a decision about your credit.

 

Its important to note that if youre checking your credit score with another company, you need your FICO score as well. Many consumers have walked into a creditor’s office believing they had great credit, only to find out that their FICO score was 50 to 100 points lower.  As with everything, there is no regulation in your FICO score among the credit bureaus. Yes, its true. You can have a different FICO score at Experian than at Trans Union, which can be different, than.well, you get the idea!  And since your credit score is a snapshot of how your credit looks at any given point in time rather than a direct reflection of your long term credit, and each company has different information about you, there can be some substantial differences.

Since you never know which of your creditors is reporting to a specific agency at any given point in time, its vitally important to just ensure that theres nothing on your report that could be used against you.

 

Key Factors of Your Credit Score

 

What goes into your credit score? Your credit score is determined by weighing more than 20 factors, all of which fall into the following five categories:

 

1) How You Pay Your Bills

 

Your payment history is 35% of your FICO score, with emphasis placed on recent activity. Paying your bills on time is good. Consistently paying them late is bad. Having accounts in collections is worse. You can probably see a pattern here!  Paying your bills on time is a huge factor in keeping your FICO score healthy.

 

2) The Amount of Money You Owe vs. Your Available Credit

 

The second most important factor creditors weigh when determining whether or not to extend you credit is your outstanding debt, and this is 30% of your score. This debt includes what you owe on credit cards, car loans, mortgages, home equity, etc. The more debt you have, the harder it will be to repay what they lend you!  Another factor they consider is the amount of credit you have available to you. If you have 10 credit cards with $10,000 of available credit each, you have $100,000 of available credit.  Statistically, people with more credit tend to use it, which makes them a less attractive credit risk.

 

Also factored in is the amount of your credit youve used. If your credit cards are all maxed out and youre applying for another one, youre going to be considered much riskier. On the other hand, if you never use your credit youre not going to have any history to back up your trustworthiness. Consumers with the highest scores use credit sparingly, keep their balances low and always make their payments on time.

 

3) The Length of Your Credit History

 

You dont want to loan a car to your teenager, so why would you want to loan them hundreds or even thousands of dollars? The length of your credit history is 15% of your total FICO score, and its used to judge how long youve been responsible for your credit. The longer youve had credit (especially with the same creditors) the more points youre going to get.

 

4) Mix of Credit

 

Consumers with the highest scores have a healthy mix of credit, which weighs in at 10% of your score. Whats that mean? It means that they have both revolving credit (credit cards) and installment credit, such as mortgages and car loans. Statistically, consumers with a richer variety of credit experiences are considered to be better credit risks.

 

5) New Credit Applications

 

Your new credit applications can sink your credit score, and theyre considered as the final 10% of your score. Scoring models compensate for people shopping for mortgage or auto loan rates, but take into consideration your history. Shopping can really hurt you if youve recently had credit stumbles, because before people declare bankruptcy and default on everything, they go looking for a life preserver.

 

What Doesnt Count

 

There are plenty of factors that are NOT considered when formulating your credit score, including:

· Age

· Race

· Sex

· Job or length of employment at your job

· Income

· Education

· Marital Status

· Whether youve been turned down for credit

· Length of time at your current address

· Whether you own or rent your home

 

Bear in mind, however, that a lender may still consider all of these factors when deciding whether or not they want to extend you credit. They are still a part of your credit history, just not one that is included in that all important number.

 

Credit Scores Are Not Perfect

 

The credit scoring system can seem ingenious until you consider the fact that theyre determined by credit reports from credit bureaus only looking to make a buck and not interested in taking the time to confirm whether or not the information on a credit report is correct. Its critical that you check your credit reports annually to look for errors, and always three to six months before planning to buy a house or a car (or apply for any other loan). This should give you time to fix any problems before your lender pulls your score.  You are entitled to a free credit report annually from the major credit bureaus, but this is not going to give you your FICO score. To see your FICO score, visit www.MYFICO.com.

 

The important thing to remember is that its never too late to fix your credit. Every year thousands of people are able to correct mistakes on their credit report, and still more have their negative items removed. Theres nothing so bad that it hasnt been removed from credit reports time and time again, so dont let that hold you back. Get out there, check your credit report and get the ball rolling.

 

This paper was NOT written to sell you anything!  It is for informational purposes.  Teaching people about their credit is my pet project.  And yes, you can follow these guide lines to fix your credit all by yourself.

 

If for any reason you don’t have the time…..or may be unsure of the process…..don’t let that hinder you from proceeding.  Competent experts are available that do this for a living.  There are also “do it yourself” kits available that actually work.  If you need help, please send me an e-mail.  Darrell@midas-financial.com.  In the subject line put “I have a question about credit”.  I will be happy to answer it or direct you to one of my accredited professionals.

 

Best,

 

Darrell Hornbacher

 

The Midas Guide to Credit and Business Funding

3 thoughts on “What the credit bureaus don’t want you to know

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