Credit Scores and Collection Accounts
Collection accounts will almost always have a significant negative impact on a credit score.
A collection account is a listing in a credit report that represents a consumer account that has been assigned to a company to collect on an unpaid debt obligation.
If a consumer stops making the contractual payments on an account or debt, the lender or creditor may assign the account or sell the account to a collection agency. This action turns a credit account into a collection account. The collection account is the account with the collection company that is collecting on an unpaid consumer debt and is generally not the original creditor or original lender.
The original unpaid obligation or debt may be from a credit card debt that was unpaid, medical bills, utility bills, or any other contractual debt that was left unpaid and then sent to a collection agency by the original creditor. The collection account is the account with the collection agency as opposed to the delinquent account that exists with the original creditor.
The original creditor’s delinquent account may also be reflected in the credit report. For instance, a collection account for an unpaid credit card balance may be reported to the credit reporting agencies as the original delinquent account with the credit card company, usually as a charged off account, as well as the balance now being collected by the collection agency.
A collection account may also be reflected in the credit report without a corresponding original creditor account. As an example; cell phone companies and medical bills that are unpaid may be sent to a collection agency to collect the unpaid delinquent debt and these creditors will not report to the credit reporting agencies, yet the collection agency the debt is assigned to will most likely report to the credit bureaus or credit reporting agencies.
A credit score evaluates collection accounts on an individual’s credit report according to when the collection occurred. Individual credit scores weigh collections on a credit report according to when the collection occurred. Generally, the more recent the collection, the more it’s going to impact the credit score.
Collection account records, no matter how recently opened, all should expire and be removed from an individual’s credit report seven years after the last 180-day late payment on the original debt.
Note that closing an account doesn’t make the record in the credit report go away. A closed account will still show up on a credit report, and its status will be considered in the credit score calculation. Paid collections and unpaid collections are generally scored the same; the impairment to a credit score occurs as a result of the account being delinquent. .
Since the collection account is different from the original creditor account, whether it is a credit card or a medical bill, and the collection accounts cannot report a payment history since technically there is no payment record with collection agency only with the original creditor then there will not be a payment history from the collection agency in the credit report and the credit score simply evaluates the date of the account and the amount.
It is always worth the effort to investigate the validity of collection accounts and the amount owed to see if they can be removed from a credit report for inaccuracy, which is common.
Using Secured Bank Loans to Improve a Credit Score
There are numerous tools that can be used to improve a damaged credit history and low credit score. Along with removing any derogatory items that may be inaccurate in a credit report, the next best tactic is to add new credit and build a quick credit history.
There are several ways to add credit to a credit report. Adding credit that helps improve a credit score can be a slow process, but a process that is generally necessary to rebuild credit profile that is the foundation of a good credit score and then make that credit appear to be a worthwhile credit risk for lenders and creditors in the future.
Adding credit to a credit report can be a simple as obtaining a new car loan or credit card. The unfortunate truth is that most consumers with a poor credit history and low credit score are not going to be granted a new car loan or credit card.
One method for acquiring new credit is to obtain a secured bank loan. A bank loan typically carries a lot of weight with creditors and credit score models. For those consumers that have the minimum financial resources to do so, a secured bank loan can provide a lift to a credit score that has been damaged by various delinquent creditor payments.
To obtain a secure bank loan, the prospective borrower will need to take some money and open a savings account with a financial institution that provides loans on existing bank accounts. Secure bank loans are generally found more often at small banks and credit unions as opposed to the larger financial institutions and national banks. The most common type of secure bank loans are usually those executed with a loan against a savings account.
A possible conflict with a credit union is that the smaller credit unions do not always report the payment and loan arrangement to the big three credit reporting agencies. This factor is critical since the reason for the loan is to repair a poor credit profile with new credit and new credit history. If a bank doesn’t report the payments to a credit bureau, it will defeat the purpose of obtaining the loan.
If the banks in the area do not offer these types of secured loans, another option is to see if the bank will provide an unsecured personal loan, a loan with a cosigner or a loan with another form of collateral to secure the loan. In either of these cases, the end result is a new bank loan reflected in the credit report that will, hopefully, have a good payment history in the future to drive a credit score higher.
When applying for a secured loan make sure the bank or credit union does report to the credit bureaus, investigate the interest rate on the loans, the maximum amount that can be borrowed based on the security as well as the available repayment schedule. Often, savings account loans have very desirable interest rates since the loan is 100% secured and easy to collect on by the bank. And always be vigilant about the monthly loan payments, do not miss a loan payment and ruin the value of these loans.
Credit Repair Scams Halted by FTC
In October, 2008 the Federal Trade Commission sent out a press release regarding charges brought against another credit repair scam operation. Credit report repair services that offer to repair credit for consumers have popped up across the nation. Unfortunately, many of these organizations fail to help consumers and in some egregious cases, violate the law by taking money in advance and deceiving consumers regarding the services they perform to improve credit histories and credit scores.
In October, the FTC announced that two bogus credit repair companies and their principals settled Federal Trade Commission charges that they falsely claimed they could clean up consumers’ credit reports and collected up-front fees for their services, in violation of federal law. In one case, the FTC alleged that the defendants marketed their services via Web sites and real estate investment seminars and falsely claimed that their special relationships with creditors, collection companies, public records providers and credit bureaus enabled them to remove derogatory information from consumers’ credit reports.
According to the FTC’s complaints, all of these defendants falsely promised to remove negative information from consumers’ credit reports, such as late payments, charge-offs, collections, tax liens, repossessions, bankruptcies, and judgments, even when the information was accurate and not obsolete, in violation of the FTC Act and the Credit Repair Organizations Act (CROA). The Commission also charged them with violating the CROA by charging and collecting payment for their services before doing any work.
In the first case, Successful Credit Service Corporation, also doing business as Success Credit Services, and Tracy Ballard, also known as Tracy Ballard-Straughn, the settlement order prohibits them from collecting additional money from consumers who purchased their services before October 16, 2008, when the court halted their business practices.
The defendants in the second case are Rudolph Joseph Strobel, a/k/a Lee Harrison, and Leanna Ruth Harrison, both doing business as Lee Harrison Credit Restoration, Credit Restoration, and Lee Harrison Associates Credit Restoration. The order bars them from collecting money from consumers who purchased their services before August 28, 2008, when the court halted their business practices, and requires them to return any money orders or other negotiable instruments received after that date.
Understanding your credit situation and the facts on how to clear up credit problems and improve a credit score is the first step to solving credit problems. Rushing into a quick fix scheme can often lead to less than satisfactory results. Know that facts before working with a credit repair organization to help your credit score.
No Credit or Credit Score Same as Bad Credit
Good credit and a good credit score is an important facet of our lives whether it is used to buy a house, for employment screening, purchasing insurance or a whole host of other activities that often require a good credit history. For some consumers though, credit is a burden and they prefer to exercise their use of cash and avoid credit.
Since there are so many actions that require a credit score such as renting a car, purchasing things over the phone or the Internet, and even writing a check having no credit and no credit score can be a burden.
For these consumers, improving their credit score is not the problem, it is simply a matter of obtaining credit in order to have a credit score. If you have no credit history, you have no track record of payment and you most likely will not have a credit score. The unfortunate aspect of having no credit history and no credit score is that consumer is considered a credit risk.
Lenders use credit scores to help them determine whether someone is an acceptable credit risk for new credit or whether a creditor will increase or decrease an existing line of credit or even the likelihood that a customer will file for bankruptcy. Creditors are reviewing a credit profile to see a history of how that consumer handles debt. The review of an individual’s credit history may involve reviewing total outstanding debts, minimum monthly payments, even account credit limits. If there is no credit history and no credit score upon which to make a decision, a decision to extend credit is regarded as a risk by most lenders and creditors.
In fact, the automated underwriting approval systems developed by FNMA and FHLMC used for the vast majority of home loan approvals will not approve a loan request in which the borrower does not have a credit score.
There are some things you can do to improve your credit even when your financial situation has turned sour and there are ways to build a credit profile and credit score when there is no credit score to start with. The first issue someone may have when there is no credit score compiled with their credit report, may be that there is a mistake on their credit report.
Credit scores are dependent on the credit reporting agency that the score is based on. The three major credit reporting agencies in the US are Trans Union, Experian and Equifax. Each one of these credit reporting agencies will have a different score for the same consumer since the data in each of the three different credit reporting agencies on which the score is based will generally have slightly different information.
If a consumer finds they do not have a credit score it may be the result of the score being based on data from just one credit reporting agency. It may be that credit histories for accounts paid on time are missing from this credit report or is only recorded in one or two credit reports.
For credit histories that are only in one of the credit reporting agencies files, ask the other agencies to add the data. Send a copy of the statement and the credit report that includes all of the accounts if you can.
If it appears more than one credit report or all of the big three credit agencies are missing accounts that are paid on time, ask the credit reporting agency that these accounts be added to the report. Send the credit bureaus a recent account statement and copies of canceled checks if needed, reflecting the account and payment history. The credit bureau doesn’t have to add account information, but if it is a verifiable account they often will add the data.
A final step is to quickly develop a credit history. A credit card is one of the fastest and easiest methods to build a credit history. Credit cards can be obtained for consumers that have no credit and previous bad credit. Some secure credit cards come with a guaranteed approval with just minimal conditions, none of which include credit verification. It is important to use the credit card to obtain a payment history, though the payments can be made within the grace period to avoid finance charges. A good resource to review competitive credit card offers is www.bestcreditcardrates.com.
Other loans such as secured loans at a bank, major department store credit cards even certain utility bills will work to establish a credit history as long as the bank or utility company reports the accounts to the credit bureaus.
The Federal Credit Repair Organizations Act – Full Text
The Federal Credit Repair Organizations Act prohibits a variety of false and misleading statements, as well as fraud by credit repair organizations. The Federal Trade Commission as well as the individual states, enforces The Federal Credit Repair Organizations Act.
The Federal Trade Commission’s Bureau of Consumer Protection works for the consumer to prevent fraud, deception, and unfair business practices in the marketplace. This federal government department protects consumers from deceptive and unfair practices in the financial services industry, including protecting consumers from predatory or discriminatory lending practices, as well as deceptive or unfair loan servicing, debt collection, and credit counseling or other debt assistance practices. The Division of Financial Practices within the Federal Trade Commission’s Bureau of Consumer Protection takes action against companies that violate the law when collecting debts, marketing debt reduction or relief services, and offering credit counseling services.
The Federal Credit Repair Organizations falls under the Federal Trade Commission’s jurisdiction.
The full text of the Federal Credit Repair Organizations Act:
Title IV of the Consumer Credit Protection Act (Public Law 90-321, 82 Stat. 164)
TITLE IV–CREDIT REPAIR ORGANIZATIONS
SEC. 401. SHORT TITLE.
This title may be cited as the ‘Credit Repair Organizations Act’.
SEC. 402. FINDINGS AND PURPOSES.
(a) Findings.–The Congress makes the following findings:
(1) Consumers have a vital interest in establishing and maintaining their credit worthiness and credit standing in order to obtain and use credit. As a result, consumers who have experienced credit problems may seek assistance from credit repair organizations which offer to improve the credit standing of such consumers. (2) Certain advertising and business practices of some companies engaged in the business of credit repair services have worked a financial hardship upon consumers, particularly those of limited economic means and who are inexperienced in credit matters.
(b) Purposes.–The purposes of this title are—
(1) to ensure that prospective buyers of the services of credit repair organizations are provided with the information necessary to make an informed decision regarding the purchase of such services; and (2) to protect the public from unfair or deceptive advertising and business practices by credit repair organizations.
SEC. 403. DEFINITIONS.
For purposes of this title, the following definitions apply:
(1) Consumer. — The term ‘consumer’ means an individual.
(2) Consumer credit transaction. — The term ‘consumer credit transaction’ means any transaction in which credit is offered or extended to an individual for personal, family, or household purposes.
(3) Credit repair organization. — The term ‘credit repair organization’—
(A) means any person who uses any instrumentality of interstate commerce or the mails to sell, provide, or perform (or represent that such person can or will sell, provide, or perform) any service, in return for the payment of money or other valuable consideration, for the express or implied purpose of–
(i) improving any consumer’s credit record, credit history, or credit rating; or
(ii) providing advice or assistance to any consumer with regard to any activity or service described in clause (i); and
(B) does not include–
(i) any nonprofit organization which is exempt from taxation under section 501(c)
(3) of the Internal Revenue Code of 1986;
(ii) any creditor (as defined in section 103 of the Truth in Lending Act), with respect to any consumer, to the extent the creditor is assisting the consumer to restructure any debt owed by the consumer to the creditor; or
(iii) any depository institution (as that term is defined in section 3 of the Federal Deposit Insurance Act) or any Federal or State credit union (as those terms are defined in section 101 of the Federal Credit Union Act), or any affiliate or subsidiary of such a depository institution or credit union.
(4) Credit.–The term ‘credit’ has the meaning given to such term in section 103(e) of this Act.
SEC. 404. PROHIBITED PRACTICES.
(a) In General.–No person may—
(1) make any statement, or counsel or advise any consumer to make any statement, which is untrue or misleading (or which, upon the exercise of reasonable care, should be known by the credit repair organization, officer, employee, agent, or other person to be untrue or misleading) with respect to any consumer’s credit worthiness, credit standing, or credit capacity to– (A) any consumer reporting agency (as defined in section 603(f) of this Act); or
(B) any person–
(i) who has extended credit to the consumer; or
(ii) to whom the consumer has applied or is applying for an extension of credit;
(2) make any statement, or counsel or advise any consumer to make any statement, the intended effect of which is to alter the consumer’s identification to prevent the display of the consumer’s credit record, history, or rating for the purpose of concealing adverse information that is accurate and not obsolete to–
(A) any consumer reporting agency;
(B) any person–
(i) who has extended credit to the consumer; or (ii) to whom the consumer has applied or is applying for an extension of credit;
(3) make or use any untrue or misleading representation of the services of the credit repair organization; or
(4) engage, directly or indirectly, in any act, practice, or course of business that constitutes or results in the commission of, or an attempt to commit, a fraud or deception on any person in connection with the offer or sale of the services of the credit repair organization.
(b) Payment in Advance.–No credit repair organization may charge or receive any money or other valuable consideration for the performance of any service which the credit repair organization has agreed to perform for any consumer before such service is fully performed.
SEC. 405. DISCLOSURES.
(a) Disclosure Required.–Any credit repair organization shall provide any consumer with the following written statement before any contract or agreement between the consumer and the credit repair organization is executed:
‘Consumer Credit File Rights Under State and Federal Law
You have a right to dispute inaccurate information in your credit report by contacting the credit bureau directly. However, neither you nor any ”credit repair” company or credit repair organization has the right to have accurate, current, and verifiable information removed from your credit report. The credit bureau must remove accurate, negative information from your report only if it is over 7 years old. Bankruptcy information can be reported for 10 years.
You have a right to obtain a copy of your credit report from a credit bureau. You may be charged a reasonable fee. There is no fee, however, if you have been turned down for credit, employment, insurance, or a rental dwelling because of information in your credit report within the preceding 60 days. The credit bureau must provide someone to help you interpret the information in your credit file. You are entitled to receive a free copy of your credit report if you are unemployed and intend to apply for employment in the next 60 days, if you are a recipient of public welfare assistance, or if you have reason to believe that there is inaccurate information in your credit report due to fraud.
You have a right to sue a credit repair organization that violates the Credit Repair Organization Act. This law prohibits deceptive practices by credit repair organizations.
You have the right to cancel your contract with any credit repair organization for any reason within 3 business days from the date you signed it.
Credit bureaus are required to follow reasonable procedures to ensure that the information they report is accurate. However, mistakes may occur.
You may, on your own, notify a credit bureau in writing that you dispute the accuracy of information in your credit file. The credit bureau must then reinvestigate and modify or remove inaccurate or incomplete information. The credit bureau may not charge any fee for this service. Any pertinent information and copies of all documents you have concerning an error should be given to the credit bureau.
If the credit bureau’s reinvestigation does not resolve the dispute to your satisfaction, you may send a brief statement to the credit bureau, to be kept in your file, explaining why you think the record is inaccurate. The credit bureau must include a summary of your statement about disputed information with any report it issues about you.
The Federal Trade Commission regulates credit bureaus and credit repair organizations. For more information contact:
The Public Reference Branch
Federal Trade Commission
Washington, D.C. 20580′.
(b) Separate Statement Requirement.–The written statement required under this section shall be provided as a document which is separate from any written contract or other agreement between the credit repair organization and the consumer or any other written material provided to the consumer.
(c) Retention of Compliance Records.—
(1) In general.–The credit repair organization shall maintain a copy of the statement signed by the consumer acknowledging receipt of the statement.
(2) Maintenance for 2 years.–The copy of any consumer’s statement shall be maintained in the organization’s files for 2 years after the date on which the statement is signed by the consumer.
SEC. 406. CREDIT REPAIR ORGANIZATIONS CONTRACTS.
(a) Written Contracts Required.–No services may be provided by any credit repair organization for any consumer—
(1) unless a written and dated contract (for the purchase of such services) which meets the requirements of subsection
(b) has been signed by the consumer; or
(2) before the end of the 3-business-day period beginning on the date the contract is signed.
(b) Terms and Conditions of Contract.–No contract referred to in subsection
(a) meets the requirements of this subsection unless such contract includes (in writing)—
(1) the terms and conditions of payment, including the total amount of all payments to be made by the consumer to the credit repair organization or to any other person;
(2) a full and detailed description of the services to be performed by the credit repair organization for the consumer, including—
(A) all guarantees of performance; and
(B) an estimate of– (i) the date by which the performance of the services (to be performed by the credit repair organization or any other person) will be complete; or (ii) the length of the period necessary to perform such services;
(3) the credit repair organization’s name and principal business address; and
(4) a conspicuous statement in bold face type, in immediate proximity to the space reserved for the consumer’s signature on the contract, which reads as follows: ‘You may cancel this contract without penalty or obligation at any time before midnight of the 3rd business day after the date on which you signed the contract. See the attached notice of cancellation form for an explanation of this right.’.
SEC. 407. RIGHT TO CANCEL CONTRACT.
(a) In General. — Any consumer may cancel any contract with any credit repair organization without penalty or obligation by notifying the credit repair organization of the consumer’s intention to do so at any time before midnight of the 3rd business day which begins after the date on which the contract or agreement between the consumer and the credit repair organization is executed or would, but for this subsection, become enforceable against the parties.
(b) Cancellation Form and Other Information. — Each contract shall be accompanied by a form, in duplicate, which has the heading ‘Notice of Cancellation’ and contains in bold face type the following statement:
‘You may cancel this contract, without any penalty or obligation, at any time before midnight of the 3rd day which begins after the date the contract is signed by you.
To cancel this contract, mail or deliver a signed, dated copy of this cancellation notice, or any other written notice to (name of credit repair organization) at (address of credit repair organization) before midnight on (date)
I hereby cancel this transaction,
( date )
( purchaser’s signature ).’.
(c) Consumer Copy of Contract Required.–Any consumer who enters into any contract with any credit repair organization shall be given, by the organization—
(1) a copy of the completed contract and the disclosure statement required under section 405; and (2) a copy of any other document the credit repair organization requires the consumer to sign, at the time the contract or the other document is signed.
SEC. 408. NONCOMPLIANCE WITH THIS TITLE.
(a) Consumer Waivers Invalid.–Any waiver by any consumer of any protection provided by or any right of the consumer under this title—
(1) shall be treated as void; and
(2) may not be enforced by any Federal or State court or any other person.
(b) Attempt To Obtain Waiver.–Any attempt by any person to obtain a waiver from any consumer of any protection provided by or any right of the consumer under this title shall be treated as a violation of this title.
(c) Contracts Not in Compliance.–Any contract for services which does not comply with the applicable provisions of this title—
(1) shall be treated as void; and
(2) may not be enforced by any Federal or State court or any other person.
SEC. 409. CIVIL LIABILITY.
(a) Liability Established.–Any person who fails to comply with any provision of this title with respect to any other person shall be liable to such person in an amount equal to the sum of the amounts determined under each of the following paragraphs:
(1) Actual damages.–The greater of–
(A) the amount of any actual damage sustained by such person as a result of such failure; or
(B) any amount paid by the person to the credit repair organization.
(2) Punitive damages.–
(A) Individual actions.–In the case of any action by an individual, such additional amount as the court may allow.
(B) Class actions.–In the case of a class action, the sum of–
(i) the aggregate of the amount which the court may allow for each named plaintiff; and
(ii) the aggregate of the amount which the court may allow for each other class member, without regard to any minimum individual recovery.
(3) Attorneys’ fees.–In the case of any successful action to enforce any liability under paragraph (1) or (2), the costs of the action, together with reasonable attorneys’ fees.
(b) Factors to Be Considered in Awarding Punitive Damages.–In determining the amount of any liability of any credit repair organization under subsection (a)(2), the court shall consider, among other relevant factors—
(1) the frequency and persistence of noncompliance by the credit repair organization;
(2) the nature of the noncompliance;
(3) the extent to which such noncompliance was intentional; and
(4) in the case of any class action, the number of consumers adversely affected.
SEC. 410. ADMINISTRATIVE ENFORCEMENT.
(a) In General.–Compliance with the requirements imposed under this title with respect to credit repair organizations shall be enforced under the Federal Trade Commission Act by the Federal Trade Commission.
(b) Violations of This Title Treated as Violations of Federal Trade Commission Act.—
(1) In general. — For the purpose of the exercise by the Federal Trade Commission of the Commission’s functions and powers under the Federal Trade Commission Act, any violation of any requirement or prohibition imposed under this title with respect to credit repair organizations shall constitute an unfair or deceptive act or practice in commerce in violation of section 5(a) of the Federal Trade Commission Act.
(2) Enforcement authority under other law. — All functions and powers of the Federal Trade Commission under the Federal Trade Commission Act shall be available to the Commission to enforce compliance with this title by any person subject to enforcement by the Federal Trade Commission pursuant to this subsection, including the power to enforce the provisions of this title in the same manner as if the violation had been a violation of any Federal Trade Commission trade regulation rule, without regard to whether the credit repair organization–
(A) is engaged in commerce; or
(B) meets any other jurisdictional tests in the Federal Trade Commission Act.
(c) State Action for Violations.—
(1) Authority of states. — In addition to such other remedies as are provided under State law, whenever the chief law enforcement officer of a State, or an official or agency designated by a State, has reason to believe that any person has violated or is violating this title, the State–
(A) may bring an action to enjoin such violation;
(B) may bring an action on behalf of its residents to recover damages for which the person is liable to such residents under section 409 as a result of the violation; and
(C) in the case of any successful action under subparagraph (A) or (B), shall be awarded the costs of the action and reasonable attorney fees as determined by the court.
(2) Rights of commission.–
(A) Notice to commission.–The State shall serve prior written notice of any civil action under paragraph
(1) upon the Federal Trade Commission and provide the Commission with a copy of its complaint, except in any case where such prior notice is not feasible, in which case the State shall serve such notice immediately upon instituting such action.
(B) Intervention.–The Commission shall have the right–
(i) to intervene in any action referred to in subparagraph (A);
(ii) upon so intervening, to be heard on all matters arising in the action; and
(iii) to file petitions for appeal.
(3) Investigatory powers. — For purposes of bringing any action under this subsection, nothing in this subsection shall prevent the chief law enforcement officer, or an official or agency designated by a State, from exercising the powers conferred on the chief law enforcement officer or such official by the laws of such State to conduct investigations or to administer oaths or affirmations or to compel the attendance of witnesses or the production of documentary and other evidence.
(4) Limitation. — Whenever the Federal Trade Commission has instituted a civil action for violation of this title, no State may, during the pendency of such action, bring an action under this section against any defendant named in the complaint of the Commission for any violation of this title that is alleged in that complaint.
SEC. 411. STATUTE OF LIMITATIONS.
Any action to enforce any liability under this title may be brought before the later of– (1) the end of the 5-year period beginning on the date of the occurrence of the violation involved; or (2) in any case in which any credit repair organization has materially and willfully misrepresented any information which– (A) the credit repair organization is required, by any provision of this title, to disclose to any consumer; and (B) is material to the establishment of the credit repair organization’s liability to the consumer under this title, the end of the 5-year period beginning on the date of the discovery by the consumer of the misrepresentation.
SEC. 412. RELATION TO STATE LAW.
This title shall not annul, alter, affect, or exempt any person subject to the provisions of this title from complying with any law of any State except to the extent that such law is inconsistent with any provision of this title, and then only to the extent of the inconsistency.
SEC. 413. EFFECTIVE DATE.
This title shall apply after the end of the 6-month period beginning on the date of the enactment of the Credit Repair Organizations Act, except with respect to contracts entered into by a credit repair organization before the end of such period.”.
1. Pub. L. No. 104-208, 110 Stat. 3009 (Sept. 30, 1996). The amendments to the credit statutes are in Title II of the Act, entitled “Economic Growth and Regulatory Paperwork Reduction.” The footnotes in this copy of the Act are not part of the Act, but are cross-references inserted by the FTC staff for the convenience of the reader.
2. To be codified as 15 U.S.C. § 1679.
3. To be codified as 15 U.S.C. § 1679a.
4. To be codified as 15 U.S.C. § 1679b.
5. Truth in Lending Act § 103(f) states in pertinent part: “The term ‘creditor’ refers only to creditors who regularly extend, or arrange for the extension of, credit which is payable by agreement in more than four installments or for which the payment of a finance charge is or may be required, whether in connection with loans, sales pf property or services, or otherwise. . . .”
6. TILA § 103(e) states: “The term ‘credit’ means the right granted by a creditor to a debtor to defer payment of debt or to incur debt and defer its payment.”
7. To be codified as 15 U.S.C. § 1679c.
8. Fair Credit Reporting Act (FCRA) § 603(f) states: “The term ‘consumer reporting agency’ means any person which, for monetary fees, dues, or on a cooperative nonprofit basis, regularly engages in whole or in part in the practice of assembling or evaluating consumer credit information or other information on consumers for the purpose of furnishing consumer reports to third parties, and which uses any means or facility of interstate commerce for the purpose of preparing or furnishing consumer reports.”
How Your Credit History May Affect Your Auto Insurance Rates
Auto insurance companies often consider your credit report when they are determining the proper rate to charge you for your auto insurance. If you are shopping around for auto insurance, be aware that potential insurers may be looking at your credit report. There is a statistical correlation between consumer’s credit history and possible auto insurance claims. Insurers assume that customers with better credit records are also more likely to be good risks for auto insurance policies.
Not all companies use credit history as their primary determination for your rate, so if you have a poor or nonexistent credit score, shop around for one that uses traditional methods -age, driving record, type of vehicle, etc. to determine your auto insurance rate. Different methods vary from company to company, so if you are in doubt about how a potential insurer makes its decision, be sure to ask.
According to The Federal Fair Credit Reporting Act, auto insurance companies are well within their rights to use your credit report in this manner. Found at http://www.ftc.gov/os/statutes/fcra.htm. The act states that companies can use this information for “Reasonable procedures”. It is the purpose of this Act to require that consumer reporting agencies adopt reasonable procedures for meeting the needs of commerce for consumer credit, personnel, insurance, and other information in a manner which is fair and equitable to the consumer, with regard to the confidentiality, accuracy, relevancy, and proper utilization of such information in accordance with the requirements of this title.”
In order to be sure that your insurer finds the correct information on you, be sure to provide them with the necessary information promptly. Most likely, they will need your full legal name, current address, social security number, and date of birth. This will enable them to get your insurance credit score, which helps insurance companies assess the information in your credit report quickly to determine if you are a good candidate for auto insurance.
This credit score may vary from one insurance company to the next, as each may use a different method to calculate your insurance risk and premium. The insurance score is an all-encompassing method that takes into account many risk factors, including credit. Since each company uses slightly different methods, it is difficult to even give a range for what a good insurance credit score might be. In fact, the program the insurance company uses may not even tell them the specific score you receive, only if you are a qualifying candidate or not, and what tier your rates fall into.
If you feel that there are errors or incorrect information on your credit report that is affecting your insurance credit score, you should contact the credit bureau issuing the report. Unfortunately, there is nothing your insurance company can do to help you with this problem until it is resolved by the credit bureau. Once you have corrected it, you can resubmit updated information to your insurance company, and have them reassess your rate.
The key concept is that credit scores are a growing element in many business decisions. Fix your credit score before it becomes too late and the costs of having a low credit score become very real costs. The sooner you start on the path of credit score help the faster the credit score will improve and the simpler transactions will become that are dependent on this number.
The Big 3 Credit Reporting Agencies
A credit reporting agency is a repository of information that holds an individual’s credit or payment history. An individual’s credit report is created when a request for a report by a lender, credit card company or other authorized party requests it. Credit bureaus or credit reporting agencies hold the consumer’s credit data in their databases. The data is always there but the credit report does not really exist until it is asked for. It is then compiled by the credit reporting agency based on the information stored in the credit reporting agency’s file.
Information in a credit report is supplied by lenders, from court records, credit card companies, banks, mortgage companies and other creditors including the individual to create an in-depth credit report. A credit reporting agency or credit bureau collects and reports the credit information from these sources and retains the data until called for. An individual’s credit history is compiled and maintained by these credit reporting agencies as needed following their procedures and legal guidelines. The information held in the report is also used to calculate an individual’s credit score best a computer scoring model at the credit reporting agency.
There are three big national credit reporting agencies in the United States. Experian, TransUnion and Equifax are the three biggest credit reporting agencies. They are not the only credit reporting agencies in the United States but they are the biggest by a considerable degree. There are many smaller, regional and even industry specific credit reporting agencies that provide clients with credit reports. There are also many different international credit reporting agencies that operate in specific regions.
These big credit reporting agencies are the ones in which most of the attention about credit reports and credit scores is focused on because they maintain the largest national databases of consumer credit information. The big three credit reporting agencies perform two similar basic services: collecting and reporting credit information.
The three credit reporting agencies are independent of one another and though they conduct their business of data gathering to compile credit reports in a similar fashion they do not operate in the same way. This is the primary reason why consumers who obtain a credit report from the three largest credit reporting agencies get a report back with some different data. Therefore, a credit report from Experian will contain slightly different information than a credit report from TransUnion and Equifax. Not every creditor and lending institution such as credit card companies, banks or mortgage lenders report to all three credit bureaus, leading to additional difference between the three big credit reporting companies.
The majority of the credit data supplied to a credit reporting company is on a voluntary basis. A credit card company or lender can choose to supply the data or simply not choose to be burdened with the responsibility of supplying data files on their customers to the credit agencies. A common example of this is small and regional credit unions. It is likely that loans and credit accounts from these entities will not be found in a credit report. However, thousands of creditors, lenders and other businesses do send credit information and updates to each of the credit reporting agencies, frequently once a month.
The lending institutions and other creditors that do not supply information, send updated consumer credit information to one or more of the big three credit reporting agencies. The information often includes how much the consumer owes at that institution, the original amount of money extended, when the account was opened and the payment history. The same lending institutions and creditors that supply information to credit reporting agencies may also be the ones requesting credit reports when a consumer applies for credit.
The three credit reporting agencies also review public records for information, such as court records from bankruptcies, foreclosures and legal judgments. Information retained also includes recorded information about credit applications and credit inquiries.
TransUnion, Experian and Equifax now market their credit reports directly to consumers, in addition to its primary business of providing the reports to potential creditors. The big three credit reporting agencies can be contacted at the following numbers. Please note, in order to get your free credit report you want to go to annualcreditreport.com or call 877-322-8228. All of the services performed by the big three offered directly to the consumer are fee based.
Equifax, Inc. is a consumer credit reporting agency that is one of the big three credit reporting agencies. The company was founded in 1899 and is the oldest of the three agencies. Equifax is based in Atlanta, Georgia.
For general information and to order a credit report or score directly from Equifax you can contact the company at:
www.equifax.com
800-685-1111
P.O. Box 740241, Atlanta, GA 30374
Experian is a consumer credit reporting agency, also part of the big three credit reporting companies.
General information and credit report order information can be obtained at:
www.experian.com
888-EXPERIAN (888-397-3742)
P.O. Box 2002, Allen TX 75013
TransUnion is a consumer credit reporting agency, considered one of the big three agencies. TransUnion was created in 1968 and is based in Chicago, Illinois.
General information and to order credit report and score:
www.transunion.com
800-888-4213
P.O. Box 1000, Chester, PA 19022
Cost of a Bad Credit Report
Your credit report can impact a many areas of your life. Although creditors usually consider a number of factors in deciding whether to grant credit, most creditors rely heavily on your credit history. Credit card companies, mortgage lenders, insurers and employers all use your credit report to make decisions about you and your life. The fact is that all legitimate creditors want to know whether you are likely to be a good credit risk. If there are inaccuracies in your credit report, it can cost you money by resulting in increased interest rates. It could also keep you from your dream job.
Job opportunities are becoming increasingly dependent on credit reports and credit profiles. Prospective employers are getting a credit report on new job applicants as a way to assess their character as well as measuring financial stress.
Insurance premiums with insurance companies are becoming correlated to credit scores and credit reports. Most insurance companies consider that there’s a association between good credit scores and fewer insurance claims, so you may get better rates with a higher score. In worst cases, a low score could even mean fewer insurers are willing to offer you coverage at all.
Other services that may be dependent on a good credit score include deposits and agreements for gas service, electric utilities, cable service, phone and cell phone services.
At a minimum a consumer should make sure everything in their credit report is accurate and up to date to avoid the delays and problems a poor credit report and credit score can cause. After that, if the credit report shows significant blemishes or a low credit score there are a few actions to take.
Check your credit report regularly. Check your report with the three largest credit reporting agencies, Equifax, Experian and TransUnion at least once or twice a year. If you plan on making a major purchase, such as a house or a car, review your credit reports at least 3-6 months beforehand. If there are errors in your credit report, this will allow you time to investigate and correct any mistakes before they affect your purchase.
Know what to look for. Make sure that in addition to late payment reports, you are aware of other damaging information that may be more difficult to spot. Verify the balances, account status and the dates all accounts were opened. These errors can have a big impact on your credit score, which can affect your ability to get a loan.
Typographical errors or mistakes in your address won’t have a major effect on your credit score, so these inaccuracies are not important. If you find inaccuracies, you can dispute them to have them removed from your credit record. If the reports are accurate, they stay on your record for up to 10 years.
Report the problems in your credit report right away. If you spot an error in your credit report, make sure that you report it immediately. You can contact the creditor directly and if you can provide documentation, they will contact the credit reporting agency and correct the error during the next scheduled update.
If you are unable to work with your creditor to remove any inaccuracies, you can dispute errors directly to the credit bureaus. Credit inaccuracies can be dispute online or through the mail. Once you start dispute proceedings, the credit bureau has 30 days to investigate and correct the error. By keeping your credit report free of errors, you will be ready for your next major purchase or transaction or any other service that is dependent on a good credit report and credit score.
What Is a Credit Score
A credit score is a number that used by a great deal of lenders to help evaluate how likely an individual is to repay a loan or make credit payments on time. The credit score is the result of a method that represents a calculated measure of credit risk. The resulting score assesses the likelihood that a borrower will repay a loan or credit card on time. In general, lenders that make most any kind of credit decision such as granting credit cards or mortgage loans will look at an individuals credit scores as well as a variety of other information about the applicant to determine the interest rate or if credit will be approved.
The higher the score the greater the likelihood that an applicant will be approved for credit, possibly with a better rate than if they had a low credit score. Often, the lower your consumer credit score, the higher the interest rate you’ll be charged on credit cards, car loans, mortgages and other credit products. A credit score is very important because it can be a big determinant of an individual’s financial future regarding borrowing and related financial transactions. A good credit score can save a great deal of money with better loan terms and interest rates.
Credit score itself provides a numerical representation of a consumer’s credit at a point in time. An individual’s credit score is the result of a complex mathematical formula that takes into account numerous factors about the individual’s credit history. The most popular credit score is a credit bureau risk score that is based only on what is in a credit report. To determine the credit score, your credit report is scored against millions of other people’s credit reports, generating your consumer credit score based on the historical data. Computer programs process a consumer’s credit report and analyze those factors that have been found to predict creditworthiness. .
An individuals credit score, therefore is calculated using data contained in their credit report. A credit report is used as the raw data to develop the credit score, but does not contain a score by itself. Anytime information changes in someone’s credit report, the credit score will also change. If you have a short or incomplete credit history, it may not be possible to calculate a score.
Only the credit reporting agencies have the data needed to calculate a credit score. The score from each credit reporting agency considers only the data in your credit report at that agency. This is why an individual may have a different score from each of the credit reporting agencies.
What is a Credit Report
Knowing your credit report and its content is very important. There is a remarkable amount of dependence on credit in our society and credit reports now impact employment, housing, credit and more. To learn how you have handled credit in the past, most all creditors will obtain a report from a local credit reporting agency or credit bureau. Good credit is an integral part of an individual’s financial growth.
A consumer credit report is a document that primarily contains a factual record of an individuals credit payment history. Your credit report lists any credit card accounts or loans you may have, the balances, and how regularly you make your payments. It also shows if any action has been taken against you because of unpaid bills. Your current credit obligations, your payment history and your debts are all recorded in your credit report. It also provides information on where you live and work and may note other matters of public record such as judgments or bankruptcies. Your credit report doesn’t only contain financial information; it also contains a lot of personal information, including past addresses, jobs and any other names that you may have used.
Your credit bureau report is based on information supplied over time by your creditors to a company that gathers and stores the data. Almost every time you obtain credit from a bank, a department store, or other lender, the information is placed in your credit report. A company that gathers and sells the credit information is called a consumer reporting agency. The most common type of consumer reporting agency is the credit bureau. A credit bureau or credit reporting agency is in the business of gathering, maintaining, and selling information about consumers’ credit histories. It collects information about consumers’ payment habits from credit grantor’s like banks, savings and loans, credit unions, finance companies, and retailers on a voluntary basis.
These types of companies collect information about your credit activities, store it in giant databases, and charge a fee for supplying the information. There are three major credit bureaus that operate nationwide, plus many smaller companies serving local markets. The three major credit bureaus providing nationwide coverage of consumer credit information are: Experian, Equifax and TransUnion.
A consumer credit report contains a lot of data but it is generally grouped into four types of information: identifying information, credit information, public record information, and inquiries. Although each credit reporting agency may report information differently, all credit reports contain the following:
Personal, Identifying Data - This part of your file contains identifying information including you name and any aliases, your social security number, your current and previous addresses, your date of birth, current and past employers and your telephone number.
Credit Accounts and Credit History - Your report lists information on each of your accounts, including the account type, date it was opened, total credit limit, current balance, outstanding or past due balances and payment history. Your payments to various lenders or creditors may include credit card companies, mortgage lenders, banks, finance companies, stores and many other types of lenders.
Credit Report Inquiries - Anytime someone looks at your credit file, an inquiry notice is placed on your file. When a lender requests your credit report, either to process an application you submitted or to qualify you for pre-approved offers, the credit report inquiry is recorded. An inquiry may only record the name and date of the company that checked your record. When an individual request their own report, however, the inquiry is not listed.
Public Records and Collections - This includes information on bankruptcies, foreclosures, and any other liens. For individuals that have any tax liens, public bankruptcies, judgments or collection agency debts, these will be included on their credit history report.
There are a variety of restrictions on what can not be on your credit report and what will not generally be in a credit report. A credit report does not include information about your checking or savings accounts or any brokerage or investment accounts, bankruptcies that are more than 10 years old, charged-off or debts placed for collection that are more than seven years old, gender, ethnicity, religion, educational history, your salary, political affiliation, medical records and history, or criminal records.
Although the credit reporting agencies’ data is fairly extensive, they are incomplete in at least two respects. First, not all information on credit accounts held by individuals is reported to the credit reporting agencies. Data reporting to credit bureaus is a voluntary system. Some small retailers and mortgage and finance companies do not report to the agencies, and individuals, employers, insurance companies, and foreign entities typically do not report loans they extend. Also, information on student loans is not always reported. Second, some accounts that are reported contain incomplete or out-of-date information. Sometimes creditors do not report or update information on the credit accounts of consumers who consistently make their required payments as scheduled or on the accounts of those who have been seriously delinquent in their payments, particularly accounts with no change in status. Similarly, credit limits established on revolving accounts, such as credit cards, are not always reported or updated.
Although credit reporting agencies provide individual credit reports to lenders and others that have authorized access to the report when you apply for credit, they do not make actual lending decisions. It is up to individual lenders to evaluate your credit report and any other factors they consider important and then decide whether or not to offer you credit.