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How you use credit and pay bills can affect your ability to obtain additional credit in the future. If you are considering applying for credit, have been denied credit, or just want to know what credit information is given to any inquirers, your first step is to contact a credit reporting agency (CRA), also known as a credit bureau.

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* Credit Reporting Agencies * Credit File Information * Obtaining a Credit Report * Disagreeing with Credit File Information * Credit File Confidentiality * Credit Repair Companies * Tips to Remember - Rebuilding a Credit File

How you use credit and pay bills can affect your ability to obtain additional credit in the future. If you are considering applying for credit, have been denied credit, or just want to know what credit information is given to any inquirers, your first step is to contact a credit reporting agency (CRA), also known as a credit bureau.

This pamphlet explains the purpose of a credit reporting agency, the steps to take to obtain information in your credit file and other facts on how credit information from a CRA may be used.

Credit Reporting Agencies

Credit reporting agencies (CRA) or credit bureaus, are companies that gather detailed information on how consumers use credit, and sell this information to credit-granting companies such as banks, retailers or credit card companies. Credit-granting businesses regularly supply (often monthly) their credit experience with an individual to CRAs.

There are three major CRAs: Equifax, TRW, and Trans Union.

All of the information received from credit-granting companies is usually assembled in a standardized, automated format called a credit report. While the CRA does not grant credit, the information from your credit file helps other businesses decide if you are a good credit risk.

A CRA charges inquirers for its credit information. Credit-granting businesses subscribe to a CRA by paying a flat monthly fee and an individual fee for each credit report they receive. Your credit file should be available only to those companies who have a legitimate business need for the information. In addition to credit-granting companies, potential employers, landlords, or insurance underwriters, may ask for information from your credit file.

Credit File Information

The CRA includes the following information in your credit file:

* General identification information that includes your social security number, address, and marital status.

* Employer's name and address, and your estimated income.

* Payment history that includes the names of your creditors, how much and what kind of credit you are using (installment, open-end, revolving), and how you are repaying or have repaid the credit (payments on time or late, delinquent balance).

* Inquirers of your credit file, such as the names of credit-granting businesses who have requested your credit history in the last six months, and employers who have requested your report for employment purposes in the last two years.

* Public record information that includes any bankruptcies, foreclosures, and tax liens.

There is a time limit for reporting negative information in your credit file. According to the federal Fair Credit Reporting Act (FCRA), delinquent payments can be reported for no more than seven years; personal bankruptcies for no more than ten years.

Obtaining a Credit Report

The FCRA also allows you to review information in your credit file at the credit reporting agency. If you have been denied credit based on information in your credit report, the credit grantor must advise you of that fact, and provide you with the name and address of the credit reporting agency making the report.

When you receive the credit grantor's response, you may then send a copy of this letter to your local credit reporting agency and request information in your credit file, at no cost to you, within 30 days.

If you have been denied credit and you request your credit report from one of the three major credit reporting agencies, you may want to request copies of your credit file from the other two major CRAs. Obtaining copies of your credit file from all CRAs will help prevent inaccurate reporting. You may also write the CRA and request an appointment to review your credit report.

If you have not been denied credit, but simply want to know what information is in your credit file, you may write or call the credit reporting agency. The CRA will usually ask you for identifying information, such as current address and social security number, before it releases the credit information.

A fee ranging from $2-$20 may be charged for the credit report. In some instances there may not be a charge for the report. Again, because there may be more than one CRA in your area that maintains a credit file on you, you may also want to contact the other CRAs for all available information.

To find the address and telephone number of a CRA check the yellow pages directory.

Disagreeing with Credit File Information

After receiving and reviewing your credit file, you may find information with which you do not agree. If this happens you may write the credit reporting agency, requesting it to check and verify any information you dispute.

The CRA is required by the Fair Credit Reporting Act to check the claim within a "reasonable period," usually 30 days. If the disputed item is wrong, the CRA must correct it. If the CRA cannot verify the disputed item, it must delete the item.

An item might be deleted if the CRA asked the credit-granting business to check the disputed claim but did not receive a response within a reasonable time. Later, however, if the CRA finds that it did report the deleted item correctly, this item may again be reported. Generally, the CRA will advise you of whatever action it takes regarding the disputed claim.

If a correction is made, the CRA will send, at your request, a notice of the correction to any creditor who has checked your credit file in the past six months. If you question an item in your credit file that the CRA has told you it will not change, you may send a 100 word, or less, comment explaining your side of the story, which the CRA is required by federal law to send to any future inquirers.

Credit File Confidentiality

Because confidentiality of your credit file is required by the FCRA, the federal government takes a strong position in ensuring that companies who request information from your credit file keep the information confidential.

In one case, for example, the Federal Trade Commission (FTC), which oversees the FCRA, charged one of the major credit reporting agencies with the unauthorized use of credit files to create pre-screened mailing, or telemarketing lists, without a subsequent offer of credit to every person whose name appeared on the list.

In another case, the FTC charged a company, that purchased consumer credit information and resold it to others, with failing to insure that purchasers of this information had legally permissible purposes for obtaining credit information. According to the Commission, the FCRA requires credit bureaus to have reasonable procedures to ensure that only those with permissible purposes obtain credit reports.

Credit Repair Companies

If you have been denied credit based on information found in your credit file, you may be tempted by claims from credit repair companies promising to "fix" your credit. These companies may charge large fees for their service which allegedly will remove negative information from your credit history. However, generally, you can do for free, or for only a few dollars, anything a credit repair company can do.

Credit repair companies may rely on a section in the FCRA that ailows you to request a CRA to check a disputed claim in your credit file. Because the FCRA requires the CRA to check these claims in a reasonable period, credit repair companies try to send so many verification letters to the CRA that it cannot check the claims within a reasonable period and is forced to delete the negative information.

However, many CRAs view reverification checks requested by credit repair companies as "frivolous," which means they may not be required to reinvestigate the disputed information.

Tips to Remember - Rebuilding a Credit File

In general, time is the only thing that will "fix" your credit report. Information in your credit report will only be changed if items are actually wrong, or beyond the seven (or ten) year reporting period, required under federal law.

However, there are measures you can take to improve your chances for receiving credit in the future, even if you have been denied credit and find negative information in your credit file at the CRA.

* Catching up with payments -- There is no substitute for paying bills on time. If you have received credit in the past but have made late or delinquent payments, you may wish to contact your creditors directly and request a reduced payment plan with them.

If your efforts are unsuccessful, you may want to contact a credit counseling service, such as the nonprofit Consumer Credit Counseling Service (CCCS), which has chapters in many cities. But, be careful who you deal with. Some credit counseling organizations, even some that are non-profit, may charge large fees and perform services of little or no value.

A reputable counseling service will work with you and your creditors to establish a payment plan at a minimal extra cost to you, and help you budget your money as well.

* Securing a credit card -- If you have negative information in your credit file that prevents you from getting a traditional credit card, you might consider obtaining a secured credit card.

Unlike traditional credit card accounts, a secured credit card requires that you deposit money in a bank, savings and loan company, or other financial institution which then becomes your line of credit. Your money in the savings account is held by the bank.

Before considering this option, you should check for any processing fees, the interest rate of the card, as well as what interest you will receive from the savings account. If you pay your secured credit card bills in a timely manner, you might consider applying for a traditional credit card, after a year or so.

* Co-signing a loan -- If you cannot get a loan or other credit on your own, you may want to ask a family member, or relative, who has a good credit history to co-sign a loan with you. A co-signor accepts the responsibility of repaying the loan, if you do not. As a result, you become a better credit risk to the credit-granting company. Paying back the loan on time may add more positive information to your credit file with a CRA.
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A Better Business Bureau Consumer Information Series Publication
Published by Council of Better Business Bureaus, Inc.
4200 Wilson Blvd., Arlington, VA 22203
Copyright 1995 by the Council of Better Business Bureaus, Inc.

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