CONSUMER CREDIT REPORTS

There are a lot of fallacies regarding Credit Reports and Credit Scores, and I am sure that you can all tell me at least 2 different ones...

Did you hear the one about?

“When I turn 35 years old, my debts are wiped clean”

“When I apply for new credit it won’t affect my credit score”

“The more debt I have, the better my score”

“My credit score is only affected by my payment history”

Well, let’s try and dispel some of the fallacies with a few facts……….

  1. What is a Credit Report?

  2. What your Credit Report reveals about you

  3. Getting a copy of your Credit Report

  4. What is a Credit Score and How is it Calculated?

  5. How to keep a good Credit Score

  6. What can happen when your payments are overdue

  7. Why you should review your Credit Report

  8. Inaccurate and incorrect information

  9. “Am I responsible if I co-sign a debt?”

  10. Facts & Fallacies

Attachment 1 - Sample letter for requesting a credit report

Attachment 2 - Sample dispute letter

1. What is a Credit Report?

There are 2 types of Credit Reports:

  1. Investigative Credit Report

      An Investigative Credit Report may be requested on you, usually by the following:

This report contains much more detailed information on you.

Should an Investigative Credit Report be requested for you, the credit bureau MUST inform you directly and you have the right to add your comments to the report, before it is forwarded to the requestor.

    2. Consumer Credit Report

It is the Consumer Credit Report we are discussing in this issue.

A Consumer Credit Report details, in depth information about your credit history, and will also include:

Your Credit Report may also contain:

Your Credit Report should not contain:

Creditors, insurance providers, employers and any other person you authorize have access to it.

Your Credit Report reveals your Credit Score (see section 4 – What is a Credit Score?)

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2. What your Credit Report reveals about you

There are 4 main areas:

Each of the 3 credit bureaus report the above information in a different ways, so you need to review the individual reports carefully, in order to ensure accurate information is documented.

This information will stay on your credit report for 7 years, from the date of the last activity.

If you file for chapter 7 bankruptcy, this will stay on your credit report for 10 years and it is also on your public records, which every body has access to.

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3. Getting a copy of your Credit Report

I am sure that you have all been inundated with offers of a “free credit report” either through email, phone calls or the good old fashioned US Mail.

The best 2 ways to get your credit report are either:

  1. Obtaining via the Internet

    2.  In writing a letter directly to the credit bureaus.

Which ever way you prefer, you must obtain a copy from all 3 credit bureaus:

Equifax - www.equifax.com
call: 800-685-1111 or write:
P.O. Box 740241, Atlanta, GA 30374-0241

Experian - www.experian.com
call: 888-EXPERIAN (397-3742) or write:
P.O. Box 2002, Allen TX 75013

Trans Union - www.transunion.com
call: 800-888-4213 or write:
P.O. Box 1000, Chester, PA 19022

The reason for this is simple, different creditors report to different bureaus and so each report may contain different information about your history, by getting a copy for all 3 credit bureaus, you will get the full picture of what is being reported about you.

If you purchase a credit report, the price is set by law and will not exceed $9.50.  However depending on what other services you purchase with your credit report, the price can vary significantly, so please shop around.

For more information visit www.annualcreditreport.com  however, this free copy does not include your important Credit Score.

You are also allowed a free credit report at any time, if the following applies: 

Please keep in mind; your free copy does not necessarily include your Credit Score!!!

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4. What is a Credit Score?

There are now 2 scoring systems being used

 FICO scores range between 350 and 850 points

 The FICO score is computed as follows:

Payment History – Contributes to 35% of your score

Amounts Owed – Contributes to 30% of your score

Length of Credit History – Contributes to 15% of your score

New Credit – Contributes to10% of your score

Types of Credit Used – Contributes to 10% of your score

For more information on Fico scores visit: www.myfico.com

What is the average FICO credit score for Americans?  

Good question!! The answer depends on who you ask, let’s look at the following scores taken from the following web sites August 2006:

www.myfico.com state that the median credit score is 723

www.nationalscore.com state that the average credit score is 675

On 2 different web sites, the difference in the average score is 48 points, that can make a big difference when looking for new credit rates, just take a look at the example below.

This example was taken from myfico.com web site, and it demonstrates how your credit score can affect your monthly mortgage payments, this is for a

$216,000 loan over a 30 year fixed mortgage

 

Fico Credit Score Range within:

 

Interest Rate

 

Monthly payment

760 – 850

6.21%

$1,324

680 – 699

6.6%

$1,380

620 – 639

7.79%

S1,554

As you can see, the lower your score the higher the interest rate and that means you will pay a lot more for the same value loan.

In the example above, the person with the lower credit score of 121 points means that they will pay:

$230 A MONTH MORE  & that’s $2,760 A YEAR

What could you do with extra money?

VANTAGESCORE ranges between 500 and 990 points

VantageScore was developed using information from all three credit bureaus, and uses the 6 criteria described below. The result creates a credit score consistency across all three bureaus, plus a level of predictive power.

The VANTAEGSCORE is computed as follows:

Payment History – Contributes to 32% of your score

Utilization - Contributes to 23% of your score

Balances – Contributes to 15% of your score

Depth of Credit – Contributes to 13% of your score

Recent Credit – Contributes to 10% of your score

Available Credit – Contributes to 7% of your score

Scorecards were scaled consistently across each credit reporting company to create a score range from 501-990 that accommodate natural A, B, C, D, and F grade intervals. Note that there is no E grade.

901 – 990 = A

“Super Prime”

If you are within this group, you will be in the top 11% of the population and viewed as very low risk. Which means that you will probably get the best rates and offers from lenders.

801 – 900 = B

“Prime Plus”

In this range you are seen to have good money management and are in the top 40% of the population. Lenders will offer “good” rates and offers to people in this range.

701 – 800 = C 

“Prime”

You are in the top 60% of the population and seen as “creditworthy”. You may get reasonable offers from lenders but some may want to review your credit history more in depth and may require additional documentation from you.

601 – 700 = D

“Non Prime”

In this range you are within the LOWEST 38% of the population and will be viewed as a high risk by lenders. Lenders may offer you credit but it will be at less favorable rates.

501 – 600 = F

“High Risk”

You are in the LOWEST scoring 19% of the population, and viewed as a VERY RISKY GROUP. Many lenders will NOT extend credit to you. Other may extend credit but may require security deposits and your interest rates may be higher in order to compensate for the high risk.

Please note:

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5. How to keep a good credit score

Below are some ways to help you keep a good score:

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6. What can happen when your payments are overdue?

 

Time

Action

Early stage

Up-to 59 days past due

Customer is notified that another payment is due; account needs to be brought current.

  • Customer telephoned for immediate arrangement

  • Typically one day is allowed after leaving message for customer before follow-up phone call.

  • Initial derogatory report made to credit bureaus anywhere from 31st to 61st day of delinquency, depending on creditor policy

Mid stage

60-119 days past due

Advanced delinquency procedures begin:

  • Account closed or credit line suspended; ongoing derogatory reporting.

  • Customer notified.

  • Notice of default and chance to fix the situation sent to customer.

Late stage

Over 120 days past due

Actions of last resort undertaken:

  • Ongoing derogatory reporting; balance is accelerated and payable in full.

  • Third-party collectors often take over the account from the creditor.

  • Legal proceedings are initiated for judgments; possession; execution; garnishment, etc.

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7. Why you should review your credit report

Even though the creditors put the information onto your report, you are still responsible for ensuring the accuracy – yes, I know, that doesn’t seem to be fair, but unfortunately it’s a fact, so you need to review your credit reports at least once per year, if not more frequently.

Recently after doing just a small survey, we found that over 80% of the people sampled had either incorrect or inaccurate information on their credit reports, so it can happen to you.

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8. Incorrect and inaccurate information on your credit report

OK, you have got your credit reports and surprisingly your credit report contains either inaccurate or incorrect information, what do you need to do?

  1. In writing, keeping a copy for your records, notify all 3 credit bureaus, detailing what is inaccurate/incorrect and why, you will need to provide evidence/proof to verify your claim.

  2. The credit bureau has 30 days to investigate and respond to you. Information that cannot be substantiated must be removed.

  3. If the disputed information is confirmed as accurate, you can include an explanation to be included in your credit report.

REMEMBER: it is your responsibility to have the information corrected.

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9. “Am I responsible if I co-sign a debt?”

If you replied YES, then you are correct.

In addition, lenders may consider co-signed amounts when calculating your debt-to-income ratio before extending YOU more credit.

If the person does not pay the debt:

If a co-signed debt goes to collection:

If the person files bankruptcy:

Still want to co-sign??

Again, I think we all know several stories of sisters co-signing for brothers, husbands co-signing for wives and friends co-signing for friends, all of whom have been left to repay the debt.

The best advice - don’t do it.

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10. Facts & Fallacies

  1. Fallacy: My score determines whether or not I get credit.
    Fact: Lenders use a number of facts to make credit decisions, including your FICO score. Lenders look at information such as the amount of debt you can reasonably handle given your income, your employment history, and your credit history. Based on their perception of this information, as well as their specific underwriting policies, lenders may extend credit to you although your score is low, or decline your request for credit although your score is high.

  2. Fallacy: A poor score will haunt me forever.
    Fact: Just the opposite is true. A score is a “snapshot” of your risk at a particular point in time. It changes as new information is added to your bank and credit bureau files. Scores change gradually as you change the way you handle credit. For example, past credit problems impact your score less as time passes. Lenders request a current score when you submit a credit application, so they have the most recent information available. Therefore by taking the time to improve your score, you can qualify for more favorable interest rates.

  3. Fallacy: Credit scoring is unfair to minorities.
    Fact: Scoring considers only credit-related information. Factors like gender, race, nationality and marital status are not included. In fact, the Equal Credit Opportunity Act (ECOA) prohibits lenders from considering this type of information when issuing credit. Independent research has been done to make sure that credit scoring is not unfair to minorities or people with little credit history. Scoring has proven to be an accurate and consistent measure of repayment for all people who have some credit history. In other words, at a given score, non-minority and minority applicants are equally likely to pay as agreed.

  4. Fallacy: Credit scoring infringes on my privacy.
    Fact: Credit scoring evaluates the same information lenders already look at - the credit bureau report, credit application and/or your bank file. A score is simply a numeric summary of that information. Lenders using scoring sometimes ask for less information - fewer questions on the application form, for example.

  5. Fallacy: My score will drop if I apply for new credit.
    Fact: If it does, it probably won't drop much. If you apply for several credit cards within a short period of time, multiple requests for your credit report information (called “inquiries”) will appear on your report. Looking for new credit can equate with higher risk, but most credit scores are not affected by multiple inquiries from auto or mortgage lenders within a short period of time. Typically, these are treated as a single inquiry and will have little impact on the credit score.

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Attachment 1 – Sample letter for requesting credit report

MY NAME

MY ADDRESS

MY PHONE NUMBER

 SEND 1 COPY TO ALL 3 CREDIT BUREAUS:

DATE

Dear Sir/Madam,

 

REQUEST FOR CREDIT REPORT

Please provide one FREE copy of my credit report.

Name/s:      

Addresses:  

Telephone Number:          

Date of Birth

SS#                     

 

Yours truly,

 

SIGNATURE

NAME

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 Attachment 2 – Sample dispute letter

Date

Your Name
Your Address
Your City, State, Zip Code

Complaint Department
Name of Credit Reporting Agency
Address
City, State, Zip Code

 

Dear Sir or Madam:

I am writing to dispute the following information in my file. The items I dispute are also encircled on the attached copy of the report I received. (Identify item(s) disputed by name of source, such as creditors or tax court, and identify type of item, such as credit account, judgment, etc.)

This item is (inaccurate or incomplete) because (describe what is inaccurate or incomplete and why). I am requesting that the item be deleted (or request another specific change) to correct the information.

Enclosed are copies of (use this sentence if applicable and describe any enclosed documentation, such as payment records, court documents) supporting my position. Please reinvestigate this (these) matter(s) and (delete or correct) the disputed item(s) as soon as possible.

Sincerely,


Your name

Enclosures: (List what you are enclosing)

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