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FCS 5048 Credit Reports and Credit Reporting Agencies1 Mary N. Harrison2 1. This document is Fact Sheet FCS 5048, a series of the Department of Family, Youth and Community Sciences, Florida Cooperative Extension Service, Institute of Food and Agricultural Sciences, University of Florida. Publication date: July 1999. First published: January 1996. Revised: July 1999. Please visit the EDIS Web site at http://edis ifas.ufl.edu 2. Mary N. Harrison, professor, Consumer Education, Department of Family, Youth and Community Sciences, Cooperative Extension Service, Institute of Food and Agricultural Sciences, University of Florida, Gainesville FL 32611. The Institute of Food and Agricultural Sciences is an equal opportunity/affirmative action employer authorized to provide research, educational information and other services only to individuals and institutions that function without regard to race, color, sex, age, handicap, or national origin. For information on obtaining other extension publications, contact your county Cooperative Extension Service office. Florida Cooperative Extension Service/Institute of Food and Agricultural Sciences/University of Florida/Christine Taylor Waddill, Dean. The extension of consumer credit to so many people makes it necessary for lenders to obtain certain information about the people with whom they are dealing. Credit bureaus were organized to fill the need for collecting and storing up-to-date information about people's financial and credit standing and to make this information available to creditors. For years credit bureaus served local areas. Credit Reporting Agencies As people became more mobile and technology expanded, credit reporting agencies adapted to meet the changing needs. They served wider areas, developed national networks and expanded the types of services offered to the business community. This change is continuing. Local credit bureaus are disappearing. They are being replaced by large national credit information services which have national headquarters, operate regional offices and/or have affiliates that serve wide geographic areas across the nation. Most adults have a file located in one or more of the credit information services. There are three major credit information services which operate nationwide. They are: Equifax with its national service center in Atlanta, Georgia; Trans Union Corporation in Springfield, Pennsylvania; and Experian in Allen, Texas. Although all three operate nationwide, each has a region of the country in which it is more widely used. Credit information services are competitors, thus they do not routinely share information among themselves. Each collects and compiles its own information, therefore, the information in their files is not identical. Most financial institutions and businesses are members of one or more of these organizations. They pay membership fees to obtain information relating the credit history and financial situation of credit applicants. Businesses also provide reports on their credit customers to the information services. Credit information services do not give credit ratings. They provide information about the applicant's employment and credit history. They may use symbols and numbers to indicate whether an applicant pays his/her bills when due or is a slow payer. It is the credit grantor who decides whether or not to extend credit. As long as the creditor applies uniform rules to all credit requests and does not discriminate on the basis of sex, race, national origin or martial status, it has the right to refuse or extend credit as it wishes. When a creditor turns down an applicant, it must give a written
Credit Reports and Credit Reporting Agencies 2 explanation of the reason. Reasons for refusing an application include things such as an incomplete credit application, insufficient credit references, not enough income and too many debts. When an applicant has been denied credit he/she has the right to be told why. If the denial was based on information from a credit information service, the applicant must be given its name and address. He/she has 30 days within which to contact the credit reporting service and review information in the file without being charged. If incorrect information is found it must be reinvestigated without charge to the consumer and corrected. The consumer has a right to know what is in his/her file at any time. He/she can contact a credit information service or credit reporting agency and with proper identification review information contained in the file. A small reasonable fee may be charged for this service. Credit Reports In general, a credit report contains the following types of information: 1. Identification -the report will give the name, birthdate, social security number, current and previous addresses and the date the file was initiated at the credit bureau. 2. Public record information -the report will note, within certain limits, court judgments, lawsuits and tax liens against one, and any bankruptcies. It may also note one's divorce or the death of a spouse and mortgages and deeds held. 3. Credit Accounts -information in this category can include present and past credit accounts whether they are joint or individual accounts, how long the accounts have been in existence, the credit limit or the amount of credit granted, how much is still owed and whether payments are made on time. 4. Inquiries -also the report will contain a record of any inquiries received requesting credit information during the past 6 months. The credit grantor evaluates this data based on its own standard for determining credit worthiness and decides whether to give credit or not. Most credit reports primarily focus upon information relating to one's credit history. Depending on a creditor's request, the credit reporting agency supplies one of two kinds of credit reports, an in-file report or an updated report. An in-file report contains information on file at the time of the creditor's request. How current and complete the information is depends on how regularly and completely the creditors report to the information service. Generally, they submit reports on a monthly (or quarterly) basis. It usually takes one to four weeks after the information is received for it to be processed and included in the files. Therefore, data in the in-file report may be at least two or more months old at the time the report is issued. When a person applies for a large loan or for long term credit, such as a mortgage or has a limited credit history, the creditor usually will request an updated report. In doing this, the credit information service contacts the applicant's creditors to check the present status of his/her accounts and contacts his/her employer to verify employment and income. If a credit applicant lists any credit accounts not included in the in-file report, the credit information service will usually verify them. Fair Credit Reporting Act Although most people agree with the necessity of gathering relevant information to determine the granting or withholding of credit, the volume and availability of this personal credit information has created many problems. One of the main problem areas concerns the inclusion of information in a credit report that is inaccurate or outdated. In response to this problem the U.S. government enacted the Fair Credit Reporting Act in 1971. The language of the Fair Credit Reporting Act summarizes its intentions: Consumer reporting agencies have assumed a vital role in assembling and evaluating consumer credit and other information about consumers.
Credit Reports and Credit Reporting Agencies 3 There is a need to insure that consumer reporting agencies exercise their responsibilities with fairness, impartiality, and a respect for the consumer's right to privacy... It is the purpose of this title 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, relevance and proper utilization of such information in accordance with the requirements of this title. Under this law, credit reporting agencies must remove most kinds of negative entries from the records after a certain period of time. Unpaid credit accounts may be reported for up to seven years and accounts paid, but not on time, may be reported for up to five years. Law suits may be listed in the records until the statute of limitations expires. Settled law suits, however, may only be reported for up to five years. Bankruptcies may be reported for up to ten years. Credit reports can be used for the purpose of evaluating an application for credit, life insurance coverage of $50,000 or more, or employment paying $20,000 or more a year. The Fair Credit Reporting Act allows credit reports to be provided only in: 1. response to an order of a court having jurisdiction; 2. accordance with the written instruction of the consumer to whom the credit relates; 3. response to a person who intends to use the information in connection with the extension or collection of a consumer credit account, or for employment purposes, or in connection with the underwriting of insurance involving the consumer; 4. connection with determination of a consumer's eligibility for a license or other benefit granted by governmental responsibility, or 5. response to anyone who has a valid need for the information because of a business transaction involving the consumer. Equal Credit Opportunity Act Another federal law, the Equal Credit Opportunity Act of 1974, affects the way information is recorded by credit reporting agencies. This act helps married women build their own credit histories. Prior to this, a woman who used her husband's credit account did not build a credit history. This often resulted in the woman being denied credit in her own name because of inadequate credit history. The act thus stipulated that for all credit accounts opened since January 1, 1977, if a woman jointly holds an account with her husband or is authorized to use her husband's account, creditors must report account information in her name as well as her husband's. For accounts opened prior to June 1, 1977, the law gave creditors two alternatives. They had to begin reporting credit information in both spouses' names or mail a notice advising account holders of their right to have the information reported in both names. Many creditors chose to send out such a notice. However, relatively few couples requested that their credit information be reported in both names, so some older women still do not have a credit history. Although these laws provide protection for consumers in regard to their credit reports, some reports may contain inaccurate and outdated information. It is wise to review your credit file regularly. Credit Report Review Under the Fair Credit Reporting Act, if a person is denied credit because of information in a credit file, the lender must notify the person of the rejection and give the name, address and telephone number of the credit reporting service. For 30 days following the rejection the applicant has the right to visit or contact (write or telephone) the service and with proper identification to see or be told the information contained in his/her credit file free of charge. Information must be accurate and up-to-date. If the consumer believes information in the file is not correct, the credit reporting service must reinvestigate to verify the information. The applicant must also be told which creditors have requested a report during the past six months and any information supplied in
Credit Reports and Credit Reporting Agencies 4 response to employment inquiries during the previous two years. At any other time credit reporting services are required to provide a person with a copy of his/her credit report if he/she requests it. A small fee (about $8.00) is usually charged for this service, if the person has not been denied credit within the previous 30 days. Identification will be required to get the report. Consumer credit reporting services are usually listed in telephone directories as, "Credit Information Services or Credit Report Agencies" Correcting Reporting Errors What recourse do you have if your file at the credit reporting service contains inaccurate or outdated information? If a consumer challenges any information in his/her report at any time, by law the credit reporting organization must investigate the disputed information. Oftentimes, the error is simply one of omission or failure to update a credit file and is easily corrected. If such is the case, a notice of the corrections must be sent to credit grantors requesting information during the past six months and to potential employers during the past two years. All this must be done at no cost to the consumer. If information in the credit report is still disputed after an investigation you can submit an explanatory statement of 100 words or less regarding the situation. For example, if a former spouse failed to pay his or her debts on a joint account, the other spouse should summarize this and send it to the credit reporting agency. This information must be placed in the report at no cost to the consumer and upon request sent to credit grantors requesting information during the past six months or to potential employers who reviewed it in the past two years. Establishing a Credit History Some people do not use credit believing they are less likely to run into financial trouble than those who do. However, people who do not use credit are not establishing a credit history. When they do need credit, to buy a house or to borrow money for an emergency, there will be no records to assist a potential lender to assess their credit worthiness. Thus, it is wise to prove one's credit worthiness by establishing credit. Also, for some purposes credit is very useful. A major credit card facilitates renting a car, and certain stores and hotels will not accept personal checks, but will take credit cards. Department stores are a good place to start. Instead of paying by check or cash at the department store see if the store has a credit card and apply for it. These cards carry no annual fee and there is no finance charge if the total bill is paid during the grace period. Card holders are usually offered a revolving credit agreement. Be careful not to over buy and be sure to pay bills on time. Consumer Benefits Credit reporting agencies benefit consumers in several ways. They enable extenders of credit to quickly assess an applicant's credit worthiness at any location in the nation. This makes it possible for consumers to get credit quickly. It enables you to buy a new car and drive it off the lot the same day, to use credit for mail orders and use your credit card. It also reduces the cost of credit. Think how long it would take if each merchant had to individually investigate each credit applicant and what this investigation would cost. Benefits for Businesses Credit reporting agencies furnish lenders with information about an applicant's credit history. They do not determine whether an applicant receives credit. That is a decision made by the lender, based on its own requirements and the consumer's qualifications and record. Reporting agencies sell mailing lists. as do many other types of businesses. They also provide lenders with Targeted Marketing Services. This includes things such as a list of consumers who pay their bills within 30 days. Such lists are used to offer "pre-approved" credit. Another service provided for lenders is the targeting of consumers who are beginning to show signs of financial trouble (for example: making minimum payments on all debts). This enables lenders to use caution in extending additional credit.
Credit Reports and Credit Reporting Agencies 5 Remember A good credit rating is important. It will enable you to have credit available for major purchases. No one gives a person a credit rating. People create their own ratings. The best way to maintain a good credit rating is to pay each and every credit bill promptly. References Association Credit Bureaus Inc., What You Should Know About Your Credit Report, Houston, TX Association Credit Bureaus Inc., You and Your Credit Bureau, Houston, TX Bureau of Consumer Protection, How to Dispute Credit Report Errors, FTC, Washington, DC Consumer Reports, What Price Privacy, May 1991 Lewis, Gerald, Comptroller of Florida, Money and Consumers, Tallahassee, FL, May 1992 Mastercard, Building a Credit History That Works For You, 1993 Mastercard, Credit Card Options, November 1993 Merchants Association Credit Bureau, Inc., Florida's Premier Statewide Credit Reporting Service, TRW, Tampa, FL TRW Information Service, 12 Common Questions About Credit and Direct Marketing, Orange, CA, November 1995 TRW Information Service Division, Reports on Credit and Other Financial Issues, Allen, TX, June 1995 Fair Credit Reporting Act Equal Credit Opportunity Act