Part II: The Three Major Credit Reporting Agencies and Removing Negative Items
By Gatlin Groberg
In my last blog, I answered the question of “what is credit?,” explained how credit scores are calculated, and what one can do to improve their credit score. In Part Two we will dive deeper into credit and explain who maintains the history of your credit, and what you can do to improve your credit once negative items that you believe are inaccurate have taken hold of it. Near the end of this blog, I’ll explain the consequences of accurate negative items and foreshadow what the future holds for consumer protection laws.
Credit Reporting Agencies
The question of where the credit history of individuals is maintained is an easy one to answer: private companies. Banks and lenders provide consumer information to these private companies—credit reporting agencies—and in turn the credit reporting agencies sell that information to whomever requests it. These could be potential employers, other banks and lenders attempting to qualify an individual for credit, rental properties, etc. Like credit scores, there are just a few popular credit reporting agencies that most banks and lenders use. Instead of just one company, there are three major credit reporting agencies that banks and lenders report your credit use to. Equifax, Experian, and Transunion are the most popular credit reporting agencies that most look to for accurate histories of credit transactions.
The practice of utilizing three major credit reporting agencies is important to understand. An individual’s credit history may look different depending on which credit reporting agency was used to obtain a credit report. For example, Equifax may report the history of two car loans and a mortgage, while Experian may also report a credit card. Therefore, it is a good idea to look at all three credit reports from Equifax, Experian, and Transunion when individuals want to see what is on the entirety of their credit. A popular site where an individual can get all three of their credit reports is www.annualcreditreport.com. The United States Congress allows individuals to obtain a free copy of their credit report once every twelve months using this website.
Your Rights Under Consumer Protection Laws
The right to obtain a free credit report is just one of many rights for individuals that Congress has enacted in the ever-evolving world of consumer credit. When credit first became mainstream in the 1960s, many individuals became victim to inaccurate credit reporting and fraud. Therefore, Congress passed the Truth in Lending Act (TILA)—a first of its kind legislation aimed at protecting consumers in credit transactions. There have been many additions to TILA over the years—some meant to improve existing legislation, others meant to keep up with advancing technology. Today, three pieces of legislation protect consumers from inaccurate credit reporting: The Fair Credit Reporting Act, the Fair Credit Billing Act, and the Fair Debt Collection Practices Act.
Fair Credit Reporting Act
The Fair Credit Reporting Act (FCRA), like many of its consumer protection brethren, is exactly what it sounds like. Whatever is reported on an individual’s credit history must be accurately reported. An individual has the right to question inaccurate, incomplete or unverifiable information. Credit reporting agencies are obligated to investigate an individual’s claim and the inaccurate item then must be removed or corrected, usually within 30 days.
Fair Credit Billing Act
The Fair Credit Billing Act (FCBA) directly regulates creditors in the same facet that the FCRA regulates credit reporting agencies. The FCBA allows individuals to dispute items with their creditors and requires the creditor to investigate its accuracy. Other rights that the FCBA provide are the rights of individuals to a monthly billing statement, creditors must credit accounts for items that have been returned, and creditors cannot obligate an individual to pay for goods and services that they did not accept, were not delivered as agreed, or were not as promised.
Fair Debt Collection Practices Act
The Fair Debt Collection Practices Act (FDCPA) prevents debt collectors from using deceptive, abusive, or otherwise unfair tactics when seeking a debt repayment. Unfair tactics that the FDCPA prevents range from banning phone calls from debt collectors past 9:00 pm to preventing debt collectors from threatening police action unless a debt is paid. The FDCPA is the standard when it comes to preventing debt collectors from using harassing and deceptive practices when seeking repayment.
The Accurate Negative Item
The theme of this blog so far has dealt with inaccurate information being reported by creditors and credit reporting agencies. But what do we need to know about accurate information? Negative items are a peculiar thing in credit. They’re the mother-in-law that will never let you live down simple mistakes. Sure you brought her daughter home late once, but c’mon, that was 5 years ago! I have a college degree and can provide for her now! It was just one night and she really likes fireball—but I digress. Once you have a negative item on your credit report, you have it for a long, long time—seven years in most instances. Negative items like late payments and collections will (should) fall off of your credit report naturally after seven years from the date of last delinquency. This is true even if the item has since been taken care of and paid off. More serious negative items, like bankruptcies, may stay on your credit report for ten years. Tax liens will actually stay on your credit report forever unless they are paid; only afterward will the countdown until it falls off naturally begin.
These are the harsh and serious consequences of anyone that has made the simple mistake of forgetting to make a monthly payment. Some have argued that this practice is just a stark reminder to those that laugh in the face of obligation. Others argue that it is akin to the deceptive practices that TILA was created to prevent. FICO has taken the latter to heart and recently changed their scoring model to provide more deference to those that made simple mistakes or have low balance collections. Unfortunately, the seven to ten year sentence remains the same.
Keep reading the blog and listening to the Legal Dose—we’ll see you next time!