7 Truths of Credit Reporting

The article below was adapted from an online seminar by The Motley Fool on Achieving Perfect Credit. The instructor was David Forrest. Truth #1 Credit reporting is a good thing, not a bad thing. Credit reporting is one of the most important economic developments in history. It allows a person who's a good credit risk to get credit at favorable rates while less responsible folks are asked to pay a bit more to compensate for the lender's risk. It's a beautiful meritocracy where you get rewarded over time for being responsible. The practice of collecting and sharing information on people's creditworthiness is far from perfect, but the United States is home to the most advanced and best system in the world. It allows us all to have ready access to capital and it is one of the most important foundations to our economy. That's the good news. Truth #2  Lots of mistakes get made. There's at least one and likely three credit report files for every credit-using person in the country. Two million credit reports are ordered each day, and 2 billion pieces of information are added to these credit files each month. The average consumer's credit report is updated five times a day. Computers or not, when you're handling that much information, mistakes are going to happen. Truth #3  Nobody is looking out for you. Except you. What most people don't realize is that there is almost  no structure in place to prevent the errors from taking place. There is plenty you can do to correct the problems once you find them, but little or nothing to prevent errors to begin with. The government passed laws that give you the right to correct errors once they are discovered, but no government agency is overseeing the Credit Reporting Agencies (CRAs) to ensure accuracy of initially reported data. Truth #4  The laws protect you, not "them". No law has ever been passed that mandates credit reporting. Lenders, collection agencies, credit card companies, leasing firms--anyone who extends you credit or reports information about you--are all considered "data furnishers." The naked truth here is that none of these 100,00 data furnishers are required to report anything about you. Conversely, none of the CRAs are obligated to put the information they receive from the data furnishers into your report.  Over the years, a number of laws have been passed that are aimed at protecting you, the consumer. These laws include the Fair Credit Reporting Act (FCRA), the Equal Credit Opportunity Act (ECOA), and the Fair Debt Collection Practices Act (FDCPA).  Prior to the 1970s, when several of these laws were enacted, there were serious problems in the credit reporting industry.  The biggest problem was that you were not allowed to see your own credit report. How can you dispute and correct a problem if you can't see the information? Another problem was that there were no legal restrictions on the type of information that got filed away or on who could access your file. Having information, like marriages, divorces, arrests, job promotions, race, and religion, on file led to discriminatory practices. The laws above have helped insure that decisions are made on your credit worthiness. Truth #5  It's all just gossip. Credit reporting as gossip is a compelling concept and it underscores what we said earlier about nobody being obligated to report anything about you, but everyone wanting to report about you. Some likened credit reporting to "allegations" made about you that may be true or may be false. The entire conversation going on behind your back is listed on your credit report. If you dispute the allegations being made against you on your credit report, the people who reported it must prove it is true.  Truth #6  Time, time, time is on your side. Yes, it is. No matter how ugly your credit indiscretions of the past, the law requires that CRAs stop reporting the blemishes after a certain amount of time. For almost all remarks, both good and bad, the CRAs are supposed to stop reporting them after seven years. The major exception to the seven-year rule is bankruptcy, which typically stays on the credit report for 10 years.  If you find incorrect information on your report both CRAs and creditors have a certain amount of time in which they must investigate and resolve your dispute. If for some reason they don't resolve the dispute in time, the negative remarks must be taken off your credit file regardless of whether they are true or not.  Remember, the burden of proof for these "allegations"  is on the people gossiping about you. Truth #7  It's an opt-out world. Unfortunately, the only way to opt out is to understand the rules of the game and make them work for you. If you want to stop as much of the madness as is humanly possible, then you're in luck. A number of laws, including the recently passed National "Do Not Call Registry", the Gramm-Leach-Bliley Act, and the Drivers Privacy Act, are designed to help you opt out of unwanted solicitations and sharing of your personal information. Below we have listed some information to help you stop the gossiping and sharing of your information. When notifying any of these organizations to stop mail and phone solicitations, make sure to give them all variations of your name as well as your address and  phone. If your ever order anything over the Internet or by phone or catalog, you will eventually make your way back on to the lists. It is advisable to submit these requests about every two years.  Pre-screened Credit Card lists: Call 1-888-567-8688 DMA Mail Preference Service PO Box 9008 Farmingdale, NY 11735-9008 Experian's Marketing Lists: Call 1-800-407-1088 To remove your name from telephone lists contact: DMA telephone Preference Service PO Box 9014 Farmingdale, NY 11735-9014 To remove your e-mail address from many direct marketing lists visit : www.e-mps.org