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Important Consumer Information
Do Credit Inquiries Hurt You?
At the end of each report will be a log of inquiries. An
inquiry notation is made each time someone requests a copy
of your credit file from that credit bureau. Any company
that receives a copy of your credit profile will be listed
under this inquiry Section of your report.
Lenders don't like to see a lot of inquiries on a credit
report. Excessive inquiries can result in a credit denial as
easily as bad credit . Thus, you will need to verify the
type of inquires made and take steps to remove any
unauthorized inquiries. Not all inquires are viewed
negatively. In fact several types of inquires will not
appear on any copy of your file except for the copy you
receive.
*There are six origins of inquiries:
Your Existing Creditors (okay)
Your existing creditors may do a periodic review of your
account for many reasons. These inquiries are not viewed
negatively.
Yourself (okay)
A notation may be made each time you request a copy of your
own file. This notation does not appear on the copy that
goes to your potential lender and does not count against
you.
The Bureau (okay)
The bureau may compile mailing lists for its subscribers
based on the criteria that the lender specifies. Your report
may be reviewed as a candidate for a particular mailing
list. Again, these internal inquiries do not appear on the
copy that goes to your potential lenders and therefore do
not reflect negatively.
Potential Lenders (negative)
Lenders do not have to have your permission to obtain a copy
of your credit file. The law only requires that they
reasonably expect to use the information in a credit
transaction. Any member of the bureau can obtain your file.
All they need is a social security number or a name and
address. You should be cautious about giving out any such
information until you're serious about doing business.
IRS (negative)
Anyone who has a judgment against you (negative)
they are looked at as potential debt pending approval.
Lenders have no way of knowing the status of these other
pending applications and are likely to take the safest
action by denying your application. If they are more than a
couple of months old, it looks as if they turned you down.
If there are several previous declines, the banker has to
wonder why.
Although inquiries will remain on your file for up to 2
years, those in the last 6 months will count most heavily
against you. Therefore, you should review the log to make
certain that each inquiry was done with "permissible
purpose" as explained in Section 604 of the Fair Credit
Reporting Act (FCRA). (See Appendix R)
The FCRA defines the "permissible purposes" for which
consumer credit profiles can be provided to others. A credit
report may be supplied if it's to be used for:
Credit granting considerations
Review or collection of an account
Employment considerations
Insurance underwriting
Application for a government license
with your written permission
or in response to a court order
*FBI investigation
*The new FCRA, enacted in 1996, allows the FBI to access
consumer credit reports in connection with an investigation
of issues such as counterintelligence.
So unless someone fits these categories, they should not be
viewing your credit file. Anyone who knowingly and willfully
obtains a credit report under false pretenses may be fined
under title 18, United States Code, and imprisoned up to two
year.
Who Can Access My Credit Report?
Federal law states that only certain people can obtain a
copy of your credit report and that your credit report can
only be used in a certain manner. You may request a copy at
any time but only those associated with one of the following
may legally review your report:
Application for a government license
Credit transaction or legitimate business inquiry
Hiring and promoting purposes
Insurance
There are two exceptions to this rule, however. You may give
written permission for someone else to access your credit
report and a court or federal grand jury may obtain a copy
through subpoena.
What Creditors Can And Can Not Consider
The Equal Credit Opportunity Act (ECOA) passed in 1974 and
then amendments to it in 1976, made it unlawful for lenders
to discriminate on the basis of:
Sex
Marital Status
Race
Color
Religion
National Origin
Age
Receipt of Public Assistance
Lenders can consider:
How much money you make
How long you've lived where you live now
How much your home, car or other assets are worth
How much money you have in the bank
Whether you pay your bills on time
How long you've worked for the same company
How much money you owe to others
These factors are commonly divided into what's called "the 3
C's of consumer credit":
Character: This includes your length of residency and
employment, which give lenders an indication of your
personal character. Other ways lenders evaluate financial
character is by reviewing your existing credit
relationships: credit cards, bank loans, mortgages, etc.
Capacity: Living expenses, open credit limits, current debts
and other payments give lenders an idea of how much money
you are already paying out and your ability to pay back any
future debts.
Collateral/capital: This allows creditors to secure a loan.
Thus, the worth of these assets is important to the decision
to extend credit/loans.
How Long Does Information Stay On Your Credit Report?
Federal law specifies that past errors can't haunt you
forever. Late payments, accounts that have been turned over
to a collection agency, judgments filed against you in
court, and most other blemishes are removed in seven years.
The seven years is calculated from either the date of the
original delinquency or by the date of filing (if it's a
matter of public record). The length of time that bankruptcy
remains on your credit report depends on which type of
bankruptcy you have filed. Chapters 7, 11 and 12 remain for
10 years. A Chapter 13 (in which you do pay at least a
portion of your debts) remains on your credit report for
only 7 years. Inquiries also remain on your credit report
for varying lengths. Depending on the type of inquiry, this
can be between one and two years. Positive information
remains on your report indefinitely.
Tightwaddery
Accessing Your Credit File
by Kelly Jo Landers
Do you know who is checking into your credit report? Any
time someone looks at your credit history, a so - called
inquiry appears on your credit report. This little - known
item can cause trouble even for someone with a squeaky clean
history otherwise.
Excessive inquiries can negatively effect your credit
rating. This is how. If numerous inquiries appear on your
credit history, other lenders may see them as possible
creditors that denied you credit. Assuming that, you can be
turned down for credit you want.
Numerous inquiries also make you look credit hungry, meaning
you may be in financial trouble. Smart creditors avoid
people already in trouble. Even if you get financing for an
item, they may charge you a higher interest rate because you
appear to be a risk. That can translate into some serious
dollars, my friends.
Never give your name to a retailer or auto salesman until
you are ready to buy. Simply having your name can allow them
to look for your financial information. Even if you haven't
tried to purchase anything, a peek at your rating can give
them some idea of how much you can afford of what they are
selling. This allows them to promote the most expensive item
they now know you can afford. What's more, you needn't give
your permission for someone to check your credit.
So called promotional inquiries are usually ignored whenever
they appear. Promotional inquiries are inquiries prior to
you receiving a solicitation. In most cases, potential
creditors will ignore any inquiries not resulting in new
credit after six months. All inquiries drop off of your
report after two years.
While there is not currently any legal recourse against
unauthorized inquiries, so long as the information is not
used for a fraudulent purpose, that does not mean all those
inquiries need to fill up your credit report. Request a copy
of your credit report from Experian at 1-800-353-0809. (This
is the only credit bureau that shows the complete address of
those that have made an inquiry. The others list only the
name.) Take a good look at the report. Some of the inquiries
will be familiar to you.
The unfamiliar companies are the ones you want off of your
history. The Fair Credit Reporting Act allows only
authorized inquiries to appear on a consumer credit report.
Unfortunately, if you don't know they are there, there they
will sit. You have to write to each of these companies and
request they remove the inquiry from your report and that
they not market to you.
If any of these companies should provide documentation that
you authorized the credit inquiry, be sure to read a copy of
it carefully. If there is any doubt on your part that you
were authorizing them to look at your credit report, write
back to them to complain about a deceptive or unclear
authorization form. Threaten to contact your state's banking
commission if the inquiry isn't removed, and mean it.
Some creditor's do a better job than others of answering
complaints. Be sure to send each with return receipt
requested. If you don't hear from them within thirty days of
your letter, then the matter becomes one of lack of response
to a consumer dispute. This puts the law on your side.
Others may remove the inquiry as a basic courtesy. In any
case, they will do nothing unless you initiate the review.
Removing inquiries
Prepare letters to each inquiring creditor asking them to
remove their inquiry. The Fair Credit Reporting Act allows
only authorized inquiries to appear on the consumer credit
report. You must challenge whether the inquiring creditor
had proper authorization to pull your credit file.
Your letter can go something like this:
Re: Unauthorized Credit Inquiry
Dear American Express, I recently received a copy of my Experian credit report. The credit report showed a credit inquiry by your company that I do not recall authorizing. I understand that you shouldn't be allowed to put an inquiry on my file unless I have authorized it. Please have this inquiry removed from my credit file because it is making it very difficult for me to acquire credit. I have sent this letter certified mail because I need your prompt response to this issue. Please be so kind as to forward me documentation that you have had the unauthorized inquiry removed. If you find that I am remiss, and you did have my authorization to inquire into my credit report, then please send me proof of this.
Thanking you in advance,
Jane Caveat-Debtor
Big 3 Credit Reporting Companies
Experian Equifax
Trans Union
Who makes sure that agengencies and creditors follow the
laws?
The Federal Trade Commission <http://www.ftc.gov/
> , (FTC #202-326-2222) is responsible for enforcing federal
credit laws
How to Erase Credit Inquiries
Every time you apply for credit and the credit grantor
checks your credit report, a credit inquiry is placed on
your file. Even if you receive a credit offer in the mail
and you respond, your credit will almost certainly be
checked and a credit inquiry will be added to your credit
report.
Credit inquiries are bad because too many of them can
indicate to a creditor that you're "credit hungry" and may
be in financial trouble. Worse yet, the creditor has reason
to believe that you received many of the credit lines that
are showing as inquiries, and that many of those credit
lines have not yet appeared on your credit report. Too many
recent inquiries indicate to a potential credit grantor that
your debt-to-income ratio may be much higher than you say.
Most creditors disregard inquiries once they have been on
your credit report for six months or more. This may not help
your situation if you need credit right away or if you are
applying to a creditor who looks at all of your inquiries.
All credit inquiries should come off your credit report
after two years. If you're not willing to wait, you may take
these steps:
Step 1
First, find out which credit inquiries are getting in your
way. Order all three of your credit reports. (See Order Your
Credit Reports <http://www.newcreditfilesfordummies.com/creditreports/credtrpt.html>
.) When your reports arrive, look toward the end of your
credit report to find the inquiries. Some of the inquiries
are only promotional and will not be shown to prospective
credit grantors. You need not worry about those. Identify
only the inquiries that are shown to credit grantors. You
should recognize some of these as places where you applied
for credit, but others may be a complete mystery to you.
Step 2
Find the addresses for each credit inquirer. Your Experian credit report will list addresses for each. Your Trans Union and Equifax reports will not include addresses. Match your Experian with your Trans Union and Equifax reports. You should be able to use the same addresses on the inquirers that are listed on Experian. If some of the inquirers don't show up on Experian but do show up on either Trans Union or Equifax, you will have to call the credit bureau to get their address. It is almost impossible to get a live body on the telephone at Trans Union, but Equifax has an 800 number listed at the top of their reports. If you have a inquirer on your Trans Union and you can't reach Trans Union by phone, you might try calling the 800 directory (1-800-555-1212) and request the 800 number for the inquiring creditor.
Once you have collected all of the addresses for each
inquiring creditor on each credit report, you are ready for
step three.
Step 3
Prepare letters to each inquiring creditor asking them to
remove their inquiry. The Fair Credit Reporting Act allows
only authorized inquiries to appear on the consumer credit
report. You must challenge whether the inquiring creditor
had proper authorization to pull your credit file.
Our sample letter to remove inquiries can be found here <http://www.newcreditfilesfordummies.com/Self-HelpForms/sampleletter4.html
> .
Step 4
Some of your creditors may provide documentation that a
credit inquiry was authorized by you. Read the authorization
that you signed very carefully. If there is any ambiguity,
you can write back and argue that the inquirer's
authorization form was too complicated and not easily
understood by the layman. You can threaten to contact the
State Banking Commission and complain about a deceptive and
unclear authorization form if they don't remove your
inquiry.
Some creditors will try to ignore your challenge. Be sure to
send each letter Certified Mail Return Receipt Requested and
keep close track of the time that you sent the letter. If
the inquiring creditor doesn't respond within about thirty
days, you will have ample grounds to call the inquiring
creditor and demand some action. At that point, it's almost
irrelevant whether or not you authorized the inquiry. Now
the issue becomes the creditor's lack of response to a
consumer dispute. Be sure to hold your ground. Demand that
the inquiry be removed immediately or you will complain to
the State Banking Commission or similar authorities.
Many of your inquiring creditors may simply agree to delete
the inquiry as a courtesy or because they cannot (or will
not) verify your authorization. That is the goal. Remember,
it is not likely that you will need all of your credit
inquiries removed -- just enough of them to keep you from
being denied credit.
How do I stop even limited inquiries on my credit report?
Call 1-888-567-8688. You can freeze all inquiries for up to
two years.
Testimony of the
U.S. Public Interest Research Group (U.S. PIRG)
Before the Committee on Banking
Subcommittee on Financial Institutions
U.S. House of Representatives
The Honorable Marge Roukema, Chair
By Edmund Mierzwinski
Consumer Program Director
21 September 2000
Madame Chair, Members of the Committee: Thank you for the
opportunity to present the views of the U.S. Public Interest
Research Group (PIRG)1 <http://financialservices.house.gov/banking/92100mie.htm#1.#1.>
on the important matter of disclosing consumer credit
scores.
Summary
Numerical credit scores have largely replaced narrative
credit reports for credit decision-making. Billions of
credit card and mortgage loan decisions are made on the
basis of credit scores. Yet, unlike the right to review
credit reports, consumers have no right to review their
credit scores. U.S. PIRG and the state PIRGs support
legislation, such as the Fair Credit Full Disclosure Act,
H.R. 2856 by Rep. Chris Cannon (UT), now before this
committee, as well as a similar proposal before the Congress
by Rep. Harold Ford (TN).2 <http://financialservices.house.gov/banking/92100mie.htm#2.#2.>
We also, along with Consumers Union and the California
Association of Realtors, support the California credit
scoring disclosure proposal, SB 1607 (State Senator Liz
Figueroa) now on the desk of Governor Davis awaiting his
signature.
In U.S. PIRG’s view, at a minimum, the Congress should enact
a credit scoring disclosure proposal that does five things:
-- First, it should require credit reporting agencies (CRAs
or credit bureaus) to provide credit scores along with
credit reports at no cost whenever credit reports are
currently provided by law for free.
-- Second, it should require that in other circumstances
credit scores be included with other credit reports at their
current cost, without additional fees.
-- Third, it should prohibit, as a matter of public policy,
any unfair contractual provisions between the various
parties that restrict or bind creditors, mortgage brokers or
realtors from showing consumers their scores.
-- Fourth, if Congress allows bureaus to disclose a
generated generic consumer score, rather than the most
recent proprietary score, then the bill should include a
"Truth In Credit Scoring provision" to ensure the generated
score yields results similar to scores sold commercially.
-- Fifth, any law it passes should establish a floor, not a
ceiling, and allow the states to continue to develop
innovative approaches to giving consumers greater
understanding of their credit scores and credit reports, as
California has done.
Discussion
Since the late 1980s, when U.S. PIRG and other consumer
groups began working on amending the Fair Credit Reporting
Act (FCRA), we have supported making credit scores part of
credit reports. Our full platform on necessary reforms to
the act to increase accuracy and privacy and reduce identity
theft includes a number of other remedial measures.3 <http://financialservices.house.gov/banking/92100mie.htm#3.#3.>
Although the act was substantially amended in 1996, more
needs to be done.
Indeed, the Federal Trade Commission once proposed, although
it then reneged on, the logical concept that credit scores
formed part of the "nature and substance" of credit reports
subject to consumer disclosure on request.4 <http://financialservices.house.gov/banking/92100mie.htm#4.#4.>
The FTC, in 1992, amended its Commentary5 <http://financialservices.house.gov/banking/92100mie.htm#5.#5.>
on the FCRA to require disclosure of risk scores. Following
requests for clarification by the industry, the FTC
published a request for comment in the Federal Register,6 <http://financialservices.house.gov/banking/92100mie.htm#6.#6.>
summarizing its position:
On February 11, 1992, the Commission amended its FCRA
Commentary to state that, pursuant to section 609 of the
FCRA, ``a risk score (or other numerical evaluation, however
named) that is reported by a consumer reporting agency to a
client to assist in evaluating a consumer's eligibility for
credit (or other permissible purposes) must be disclosed
(along with an explanation of the risk score)'' to a
consumer requesting disclosure of his or her credit file
from the consumer reporting agency. 57 FR 4935-36 (Feb. 11,
1992).
The comment period included negotiations between industry,
government and consumer groups. Some industry players even
developed draft model disclosure forms with educational
material explaining the scores and suggested that generic
scores, rather than the most recent proprietary score
developed for a client, might be easiest to make available.
Yet, the bulk of the industry, which included creditors, the
CRAs and the companies that develop models, resisted the
change in the commentary. They argued that it would cost too
much for little benefit and that trade secrets would be made
available. Consumer groups vehemently disagreed.
Following the comment period, then, the FTC reversed itself,
and held that credit scores were not part of credit reports
and did not need to be disclosed. In 1995, the FTC issued a
Federal Register notice reversing its proposal. The
explanation was based on a hyper-technical legal review of
the various clauses of the act’s disclosure requirements.
Clearly, the Commission decided that rather than opening up
credit scores for public review, it did not desire to risk
losing in court if the various industry parties followed up
on their threats to sue over the issue.7 <http://financialservices.house.gov/banking/92100mie.htm#7.#7.>
Based on the comments, the Commission has decided to
reinstate its original position that Section 609 does not
require a credit bureau to disclose risk scores because they
are not ``information . . . in its files on the consumer at
the time of the request'' by the consumer for file
disclosure.
Since that point, the use of credit risk scores in lieu of
credit reports has multiplied. In the first place, credit
reports are complex narrative documents difficult to review
and understand. In the second, the need for speed in the
marketplace has required their conversion through algorithms
into a mathematical summary for comparison to a passing
grade.
Instant credit, where consumers obtain credit cards in 15
minutes at a department store, would not be possible without
credit scores. Nearly all of the 3 billion credit card
solicitations mailed each year are derived from credit
scores. Debit cards are often approved not by checking your
checking account balance, but through use of credit scoring
predicative models.
By far, however, the area where the use of credit risk
scores and their concomitant lack of transparency has led to
today’s hearing is mortgage lending. Over the years, lenders
have come to rely heavily on scoring models.8 <http://financialservices.house.gov/banking/92100mie.htm#8.#8.>
Realtors and mortgage brokers have become the messengers to
consumers who have shone sunlight on credit scoring. When a
consumer applies for a mortgage, then is told that "her FICO
score is too low for the advertised rate and she will need
to go to a sub-prime lender for a higher rate loan," she
demands to see the score and an explanation. Gradually, a
network of realtors and mortgage brokers supporting scoring
disclosure has developed. In California, the unique
coalition of realtors and consumer groups has put SB 1607
onto the Governor’s desk, despite continued opposition from
creditors and credit bureaus.9 <http://financialservices.house.gov/banking/92100mie.htm#9.#9.>
Additionally, the Internet bank E-loan has played a key role
in bringing credit scoring transparency to the forefront. In
the spring, E-loan attempted to provide scores obtained from
its contractor credit bureaus. The service was popular.
However, Fair Isaacs, the dominant developer of scoring
algorithms, invoked a contractual clause prohibiting
transfer of credit scores to consumers. The credit bureau
Trans Union now says that it will develop its own scoring
model,10 <http://financialservices.house.gov/banking/92100mie.htm#10.#10.>
independent of Trans Union’s algorithms, and will provide a
generic score to consumers when credit reports are
requested. While this consumer relations effort by Trans
Union is a welcome beam of sunshine, if the Congress allows
disclosure of such a generated score, it should require the
FTC to develop standards to ensure that the consumer score
yields results substantially similar to scores generated for
commercial purposes, otherwise the exercise will become
meaningless. The California proposal, SB 1607, imposes such
a requirement.
Conclusion
U.S. PIRG has long supported the use of Fair Information Practices11 <http://financialservices.house.gov/banking/92100mie.htm#11.#11.> first developed in the early 1970s. The FIPs provide, among other things, that consumers have access to review all databases of information about them, have the right to correct errors and have assurances of security and accuracy. Disclosing credit scores is a Fair Information Practice.
As introduced by Representative Chris Cannon, the Fair
Credit Full Disclosure Act makes credit scores part of
credit reports, as the FTC once set out to do. Since then,
consumers, realtors, the Internet banker E-loan and mortgage
brokers have forced the hand of the entrenched industry
players and fractured their coalition. Although banks and,
disappointingly, credit unions continue their tired clamor
in California that SB 1607 proposal will raise the cost of
credit and that consumers will not understand their scores,
and Fair Isaacs continues to insist that its trade secrets
will be laid bare to the world if consumers are given the
necessary information that they need to save untold billions
of dollars on credit, the once-obstinate credit bureaus are
relaxing their previous opposition. Nevertheless, the best
solution would be for Congress to amend the Fair Credit
Reporting Act to require the disclosure of credit scores,
subject to our five recommendations in the summary above.
We look forward to working with you on enacting legislation
to provide greater transparency in credit scoring. Thank you
for the opportunity to testify today.
_____________________________
1. U.S. PIRG serves as the national lobbying office for
state PIRGs. PIRGs are statewide, non-profit non-partisan
groups advocating environmental, consumer, and government
reform.
http://www.pirg.org
2. See, eg, HR 4644 Fair Credit Reporting Act Amendments of
2000, by Rep. Harold Ford (TN), which provides for free
credit reports and credit score disclosures. Also see
S.3063, introduced by Sen. Chuck Schumer (NY) to require
disclosure of credit scores, which we have not yet had an
opportunity to review.
3. Our full platform for credit reporting reform can be
found in the report on identity theft "Nowhere To Turn," by
CALPIRG and the Privacy Rights Clearinghouse, May 2000,
available at <http://www.pirg.org/calpirg/consumer/privacy/idtheft2000/>
4. The full Fair Credit Reporting Act (15 USC 1681 et seq
as amended) is available on the FTC website at
http://www.ftc.gov/os/statutes/fcra.pdf
5. Generally, the commission does not maintain rulemaking
authority over the act. It has issued commentaries,
interpretations and staff opinion letters explaining its
enforcement stance.
6. Federal Register (59 FR 31176), June 17, 1994 FEDERAL
TRADE COMMISSION 16 CFR Part 600 Statement of General Policy
or Interpretation; Commentary on the Fair Credit Reporting
Act.
7. Federal Register: September 1, 1995 (Volume 60, Number
170) Page 45659-45660 FEDERAL TRADE COMMISSION 16 CFR Part
600 Statement of General Policy or Interpretation On FCRA.
8. As well, Fannie Mae and Freddie Mac, which purchase and
securitize home loans, have developed automated underwriting
systems that incorporate credit risk scoring. Fannie Mae is
now a supporter of the California proposal SB 1607, which
would not directly affect its systems, according to
California legislative documents. See <http://info.sen.ca.gov/>
for documents describing the legislative history of SB 1607.
9. See the Cal. Assoc. of Realtors site for details. <http://www.car.org/newsstand/news/aug00-7.html>
10. See Bank Rate Monitor, 24 May 2000, "Trans Union,
Experian to give consumers credit scores, but not the ones
lenders use" <http://www.bankrate.com/brm/news/mtg/20000524.asp>
Recently, in an effort to deflect legislation, the scoring
model developer Fair Isaacs has added some modestly helpful
fact sheets to its web site describing scoring. It has also
announced that by the end of the year, it too will provide a
credit score available to consumers. However, news reports
indicate that it will be unable to do so. Fair Isaacs sells
scoring algorithms to credit bureaus, which then run the
program against their database of credit reports. The
bureaus have apparently refused, so far, to make their
credit report databases available to Fair Isaacs, since to
do so would give it access to their proprietary data.
11. As originally outlined by a Health, Education and
Welfare (HEW) task force in 1973, then codified in U.S.
statutory law in the 1974 Privacy Act and articulated
internationally in the 1980 Organization of Economic
Cooperation and Development (OECD) Guidelines, information
use should be subject to Fair Information Practices that
provide for the following consumer rights: notice, choice,
access, correction, liability for violations. Privacy expert
Beth Givens of the Privacy Rights Clearinghouse has compiled
an excellent review of the development of FIPs, "A Review of
the Fair Information Principles: The Foundation of Privacy
Public Policy." October 1997. <http://www.privacyrights.org/AR/fairinfo.html>
The document cites the version of FIPs in the original HEW
guidelines, as well as other versions: Fair Information
Practices U.S. Dept. of Health, Education and Welfare, 1973
[From The Law of Privacy in a Nutshell by Robert Ellis
Smith, Privacy Journal, 1993, pp. 50-51.] 1.Collection
limitation. There must be no personal data record keeping
systems whose very existence is secret. 2.Disclosure. There
must be a way for an individual to find out what information
about him is in a record and how it is used. 3.Secondary
usage. There must be a way for an individual to prevent
information about him that was obtained for one purpose from
being used or made available for other purposes without his
consent. 4.Record correction. There must be a way for an
individual to correct or amend a record of identifiable
information about him. 5. Security. Any organization
creating, maintaining, using, or disseminating records of
identifiable personal data must assure the reliability of
the data for their intended use and must take precautions to
prevent misuse of the data.
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FTC Seeks Comment on Proposed Credit Report Rule
20 April 2004
The Federal Trade Commission (FTC) is currently seeking
public comment on a proposed rule governing availability of
the free annual credit reports mandated under the Fair and
Accurate Credit Transactions Act (FACTA).
FACTA, which provides several significant amendments to the
Fair Credit Reporting Act (FCRA), was enacted on 4 December
2003. One of its most important provisions for consumers is
a requirement that nationwide consumer reporting agencies (CRAs)
provide to consumers, upon request, a free copy of their
credit reports once a year.
FACTA directs the FTC to issue regulations establishing a
central source and standard form for credit report requests
to the three nationwide CRAs — Equifax, Experian, and
TransUnion — to enable consumers to order all three reports
at once. The FTC proposal would make that central source
available via a toll-free phone number, a postal address,
and a web site.
As to timing, the FTC proposes making this central source —
and the free credit reports that it will provide — available
in a four-phase cumulative rollout over a nine-month period.
The rollout would proceed by region, from west to east,
beginning 1 December 2004 and completed by 1 September 2005.
Under the FTC proposal, consumers would become eligible on
the following schedule:
1 December 2004: Residents of Alaska, Arizona, California,
Colorado, Hawaii, Idaho, Montana, Nevada, New Mexico,
Oregon, Utah, Washington, and Wyoming.
1 March 2005: Residents of Illinois, Indiana, Iowa, Kansas,
Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio,
South Dakota, and Wisconsin.
1 June 2005: Residents of Alabama, Arkansas, Florida,
Georgia, Kentucky, Louisiana, Mississippi, Oklahoma, South
Carolina, Tennessee, and Texas.
1 September 2005: Residents of Connecticut, Delaware, the
District of Columbia, Maine, Maryland, Massachusetts, New
Hampshire, New Jersey, New York, North Carolina,
Pennsylvania, Rhode Island, Vermont, Virginia, West
Virginia, Puerto Rico, and all U.S. territories.
This phased transition was proposed to prevent the
nationwide credit reporting agencies from receiving a surge
of free credit report requests so huge that the CRAs would
be able to process them all. The FTC was also concerned that
a sudden deluge of requests might create significant delays
for consumers seeking credit reports for other purposes.
The proposed rule is subject to a 30-day period of public
comment. At the end of that comment period, the FTC will
review the comments, modify the proposed rule as
appropriate, and issue the final rule.
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Credit Reports
What they are and how they help you
20 April 2004
What is a credit report?
A credit report is a summary of your credit history. Credit
reports help potential creditors determine whether or not to
extend credit to you — and, if so, how much credit to
extend. Companies report each instance in which you apply or
are approved for credit. Got a cell phone?
In most cases, fraudulent activity can be detected by
reviewing the accounts, inquiries, and addresses that appear
on your credit reports.
It's in your credit record. Have a second mortgage? That's
in there, too. Did the car salesman run a quick credit check
during last weekend's test drive? It shows up in your file.
This and similar information is reported back to the three
major national credit bureaus, who then aggregate it into
your credit record.
What types of information are included in my credit report?
Your credit report includes information from a variety of
sources:
· Personal identifying information, such as your name,
current and previous addresses, phone number, Social
Security number (and variations on it), date of birth,
previous employers, and your current employer.
· Account information, including the date the account was
opened, the credit limit and/or loan amount, account
balance, monthly payments, and payment patterns for the past
several years.
· Government information, including federal bankruptcy
records and state and county records of tax liens and
monetary judgments.
· Inquiries, including the names of those who have obtained
a copy of your credit report.
· Statements of dispute, which allow you and your creditors
to report the factual history of an account.
If I order a copy of my credit report, will it hurt my
credit?
Absolutely not. You have the right to examine your credit
report without affecting your credit or your credit score.
When an individual requests his or her own credit report,
the process is considered a "consumer pull" and has no
impact on the individual's credit status. Only when you ask
a potential creditor to inquire about your credit can it
affect your score.
What is a 3-in-1 credit report?
A 3-in-1 credit report is a single report that contains your
credit file data from the three major credit reporting
agencies, or CRAs — TransUnion, Experian, and Equifax. The
cost of a 3-in-1 report is necessarily higher than the cost
of a single-bureau credit report. Many lenders make their
decisions based on 3-in-1 credit reports rather than using
single-bureau reports.
Should I consider purchasing a 3-in-1 credit report rather
than a single-bureau report?
In most cases, but not always. The three CRAs operate
independently of each other and don't necessarily share
information. As a result, information that appears on one
report may not appear on another. When creditors report
information to the CRAs, they can choose which bureau or
bureaus they will contact; some report only to one bureau,
while others report to all three. 3-in-1 reports are the
best tool for identifying discrepancies, errors, and
fraudulent activity that may affect your credit standing.
If, when you order your credit report for the first time,
you suspect that you may be a victim of fraud related to
identity theft, or if you intend to apply for a major loan
within three to six months, it's prudent to examine the
contents of the credit file being held in your name by each
of the three credit bureaus. A 3-in-1 credit report should
array this information in an easy to read, side-by-side
comparison.
What is a credit score?
Credit scores — sometimes referred to as FICO scores (FICO
being an acronym for Fair Isaac and Company) — are designed
to distill the various information in your credit report
into a single number indicating your overall
creditworthiness. Credit scores give lenders a quick
predictive estimate of the risk involved in giving you a
loan.
What factors affect my credit score?
Five characteristics — given below in order of importance —
determine your credit score:
·Past delinquencies. Lenders assume that people who have
failed to make payments in the past will tend to do so in
the future.
·Relative credit utilization. Those who are near their
credit limits are considered riskier than those who use
credit more judiciously.
·Timespan covered by the credit file. The longer a consumer
has maintained a credit file, the less risky that consumer
is considered to be.
·Credit requests. More numerous requests within a short
period of time tend to indicate an elevated risk to the
would-be lender.
·Credit portfolio. This criterion (also referred to as "mix
of credit") is an excellent indication of credit risk. A
person who maintains only a secured credit card is generally
considered a greater risk than someone with a combination of
installment and revolving loans.
How do credit reports help in cases of possible identity
theft or fraudulent account takeover?
They're absolutely essential. In most cases, fraudulent
activity can be detected by reviewing the accounts,
inquiries, and addresses that appear on your credit reports.
· Accounts. If your credit report shows a recently opened
account that you don't recognize, that may indicate that a
criminal has used your identity to obtain a line of credit.
· Inquiries. Review all inquiries on your credit report in
the section entitled "Requests Viewed by Others." If you
don't recognize the credit grantor seeking access to your
report, that may indicate fraudulent activity.
· Addresses. Review the addresses appearing on your credit
report. If you discover an address where you have never
actually lived, that address may have been used on a
fraudulent credit application.
Am I entitled to a free copy of my credit report?
You will be soon. Under a provision of the Fair and Accurate
Credit Transactions Act (FACTA), a recently enacted law
amending the Fair Credit Reporting Act (FCRA), nationwide
credit reporting agencies will be required to provide to
consumers, upon request, a free copy of their credit reports
within 15 days of a request by phone, postal mail, or a
designated web site. FACTA directs the FTC to establish a
central source and standard form for these requests to
enable consumers to order them from all three CRAs at once.
The FTC has proposed a rule making this central source — and
the free credit reports that it will provide — available in
a four-phase cumulative rollout <http://www.identitytheft911.com/education/articles/art20040420factarule.htm>
over a nine-month period. The rollout would proceed by
region, from west to east, beginning 1 December 2004 and
completed by 1 September 2005.
In addition, you are currently entitled to a free credit
report if you believe you may be a victim of identity theft;
if you have been denied credit in the past 60 days; if you
receive welfare benefits; or if you are unemployed.
How To Avoid Credit Inquiries
From Michael T. Killian,
Learn these tricks to avoid point loss with each inquiry.
Each time you apply for credit, a credit inquiry is
initiated which in turn can lower your credit score by as
much as 5 points. If you then get turned down for credit,
you might even try another credit source thus initiating
still another credit inquiry. The problem, however, is that
you now have a lower credit score because the prior credit
inquiry reduced your score before this current credit
inquiry was even initiated. But you can avoid this counter
productive effort of reducing your credit score through
needless credit inquiries, by following some selected
steps... before the credit inquiry is even a thought in the
mind of the loan officer. Here is how to do it.
Credit Scoring Basics vs. Credit Inquiries
Most credit issuance is based upon one thing...
your credit score. (For a general discussion on credit
scoring see Credit Scoring Wisdom) Your credit score is
generated according to criteria found on your credit report.
Each creditor selects a score which satisfies their credit
granting criteria and if your score is below that number,
you are refused credit. In it's simplest terms, that is how
it works.
Ironically, the problem is that one of the criteria that can
lower your credit score by as much as 5 points is a credit
application made by the consumer, thus initiating a credit
inquiry. The theory is a bit confusing but basically the
rationale says if you must ask for a loan you must need the
money but you should be penalized for asking so that you do
not ask over and over of multiple lenders.... DUH!
It should be noted, however, that inquiries made by junk
mailers and such does not affect your score since these are
not consumer initiated applications. However, if you respond
to one of these offers, then a credit file inquiry is made
and your score is lowered. What should also be noted is that
if your credit file is perfectly clean, you should not even
be concerned about this 5 point penalty on credit inquiries
unless you are a new creditor without any history at all.
Therefore the remainder of this article assumes you have a
credit file problem or no credit history.
How to Avoid A Credit Inquiry
Many credit inquiries can be avoided by pre planning and by
following some very simple steps while asking some very
basic questions. But the key ingredient is to not be in a
hurry. The greatest mistake folks often make is believing
the first deal they run across is the only one that will be
offered. Therefore they JUMP at the first opportunity that
comes along. Similarly, many folks think a mortgage loan
process is the same as a car loan which in turn is the same
as a credit card application. They are not, but they all
have common traits in pre-planning and in avoiding credit
inquiries. So before you apply for any loan:
Get a copy of your credit report and determine if you have a
credit problem such as no credit history, bankruptcy, late
payments, etc. If you have good credit with no negative
comments, apply for the loan since there is no reason you
will not qualify. However, if you find a problem....
STOP! Take a breath. Decide what you are trying to do in
concrete terms. How much do you need? What is its purpose?
What interest rate and payment schedule is acceptable? You
can get a ballpark idea of what is available for price and
interest rate on the Internet. But do all of this before
looking at any neighborhood for a new home, any car on a
lot, or applying for any credit card in the industry.
Interview potential creditors before picking up a pen and
never give out your social security number unless you are
ready for the credit inquiry. For example, do not talk to a
car salesman. Tell the salesman you are there on another
issue... then make a straight line to the credit office.
Similarly, do not talk to a real estate broker until after
you have been pre qualified and have a letter to show a
broker what you can and cannot do. Telephone interview
credit card creditors if applying online. If there is no
phone number listed online, you probably should not be
dealing with them anyway.
Enter an office fully prepared to walk out. Use common sense
but if you have a package established in your mind of what
is acceptable to you and it is not offered, be prepared to
walk out of "the deal". They must want your business more
than you want their business... this part of the process is
a game which you must master. There are more car outlets,
real estate brokers, and credit card offers out there and
each wants your business.
See the next page for Questions To Ask
How To Avoid Credit Inquiries
From Michael T. Killian,
Your Guide to Credit / Debt Management.
More ideas to avoid points lost.
Ask some basic questions which are very direct.
"Am I speaking to the car lease financing (mortgage loan
officer, credit card issuance, etc.) manager?". "Who is that
manager?" "May I please speak with Mr(s) ------------
(whoever the manager is)"
"Mr Manager, my name is -------- and I filed bankruptcy 6
months ago and am seeking a car. I am considering leasing
but very open to your advice on this issue. I have been
employed at the XYZ company 8 years and have reestablished
credit at my Credit Union. Can you help me? (State your
negative side in a positive light.)
You may be asked why you declared bankruptcy and you should
have a 15 second prepared response of the basic facts
slanted positively to indicate your responsible attitude
Do not tell a sob story... they don't care. They just want
reassurances and they want it within 15 seconds so have a
prepared statement in advance.
You may be told you must first fill out an application
before discussing it further. If you are, thank them for
their advice and go to another creditor. Under no
circumstances give out your social security number until you
are confident that you will be approved. Once you release
your social security number, you are just about guaranteed a
credit inquiry. But if you already know you will be
approved, it does not matter.
If the interview is going favorably, hand over a copy of
your credit report but blacken out your personal information
until you have the answers you want. They will still need to
run an inquiry but if they have seen your report, there will
be no surprises to turn your loan down.
If you get the answers you want, you are in a position to
know if you will be approved. Therefore, the credit inquiry
now offers a cost which is acceptable because it will have
been productive.
Lenders rely heavily on your credit score to make lending
decisions. So why offer them more incentive to refuse you
the loan you are seeking? Stop shooting yourself in the
foot. If you are going to be turned down by a lender, know
about it in advance so that you do not make a bad situation
worse. Also watch for the article, "How To Improve Your
Credit Score" coming in early November.
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