What You Don’t Know About Credit Scores Can Cost You

Each year, the Consumer Federation of America, or CFA, releases a report on credit scores. Specifically, this report is an analysis of credit score knowledge and what consumers do and don’t know about the impact of their score, warning signs that could lead to poor scores and more.

The good news is that the CFA’s 6th-annual report on the matter, released earlier this week, indicates that Americans have learned from their past mistakes, notably older Americans who got into trouble during the “great recession”. But the bad news is that the report indicates that consumers still have a long way to go in terms of truly understanding the impact credit scores can have and how wide-ranging this impact is.

Check the Report: What Consumers Don’t Know

The biggest misconception that consumers have when it comes to credit scores is just how significant a low score can be when it comes to purchasing. If a credit score scale goes up to 850, a low scores is usually considered 620 or less. Generally speaking, the lower the credit score, the more difficult an individual will have getting financing for any type of purchase – that is, if they’re even approved for financing at all. Typically, poor scores can add anywhere from five to 20 percent to to the total cost of the loan. The CFA report showed that about only 20 percent of all consumers truly know just how much low credit scores can hurt.

The report found that another big unknown has to do with just who can check your credit score. While most consumers know that credit checks are essential for things like mortgages and auto loans, most don’t know that landlords, would-be employers, insurance agents, cell phone carriers and utility companies can also check your credit score in an effort to determine your “risk” as a consumer.

Other unknowns include:

  • About half of all those surveyed didn’t know that lenders are required to inform consumers of their credit score during the application process, whether they’ve been approved or not.
  • About two out of every five people surveyed believed that age and marital status factor into a credit score. That’s obviously not the case.

Conclusion

The good news about the most recent CFA report is that about 80 percent of those surveyed knew the basics about credit scores and credit reporting. Data showed that many are well aware of the negatives that can greatly impact a credit score (i.e. foreclosures, high credit card balances, bankruptcy, missed payments, etc.). But in the case of credit scores, what you don’t know can greatly hurt you. So while the CFA report does have some positives, there’s still a long way to go in order for consumers to truly understand many of the important aspects of credit.

Data-Driven Look at America’s Brutal Debt-Collection Machine

If you default on a loan and fail to pay or work out some sort of arrangement with the creditor within three to six months, things have the potential to get really sticky. You may be hounded day and night by the creditor seeking information on the status of the payment you owe to the point where their tactics may be considered illegal. Your creditor may also sue you and take you to court for the money that you owe – and that’s where things have the potential to get even more tumultuous. According to a May report from Prorepublica via Boing Boing, debt collectors often prey on minority and underprivileged groups, filing lawsuits in states with low filing fees in an effort to recoup as much as possible from the people that owe. It’s further proof that the debt-collection machine is ruthless, and this post is designed to take a closer look at just how brutal it really is.

Inside America’s Debt-Collection Machine

So just how appalling is the debt collection process in America? Just take a look at these takeaways from the Prorepublica piece:

  • In 2008, the state of New Jersey heard about 140,000 debt collection cases. Almost all of these cases were filed against African Americans that were unable to afford legal representation. These 140,000 cases were up exponentially from 12 years prior, when only about 500 cases were heard.
  • Most of the debt collection cases were filed by what’s known as “vulture capitalists,” or those who purchase the debt on the cheap and quickly file a lawsuit in a predatory manner against those they know are the easiest victims.
  • Medical debts are among those that are most sought after – and some of the victims that debt collectors and their lawyers have gone after for payment include active-duty soldiers.
  • Capital One was discovered to be the leading U.S. bank when it comes to filing lawsuits against its own customers.
  • The debt collection process for many lenders is highly predatory. It not only involves purchasing debt on the cheap, but filing suit in the states were it’s most affordable to do so to keep their own costs down. It’s a low-risk, high-reward type of proposition.
  • Creditors are always represented by legal teams in court. In 2013 New Jersey, a whooping 97 percent of defendants were without legal counsel.
  • When collectors are given access to and permitted to tap into a consumer’s bank account to seek repayment, the average amount that they net is a measly $350.

Not only does Prorepublica shed light on a damaged debt collection system in need of reform, but it also serves as a good reminder on why you should do your best to avoid financial issues at all costs. Not only can such issues hurt your credit score, but you may also find yourself on the wrong side of the predatory ladder.

 

Credit Bureaus – Why are there 3 ?

One of the things that people new to credit repair and financial literacy often wonder is why there are three different credit reporting agencies. If it’s an official agency, wouldn’t one do the job? The answers have a lot to do with how the agencies are structured and their actual roles in individuals’ credit scoring. So, let’s understand why there are there are three different business credit reporting agencies.

1. They’re for-profit companies.

It’s common for people to believe that the credit reporting agencies are federal government agencies. But, Experian, TransUnion and Equifax are all businesses. So, asking why there are three different credit reporting agencies is kind of like asking why they make Pepsi and Coke.

While these are private companies, they are governed by laws that dictate how they can use your information. For instance, they must send you your report when it is used to deny you a loan. They also must be responsive when you are trying to get an erroneous debt removed. This is important because business credit reporting is a complex process and any discrepancy in the same can significantly pull down your credit score.

2. They’re in competition.

These three companies are in competition for one another. They make their money by selling reports to lenders that can help determine how risky it is to do business with a potential borrower. If you compare your credit reports from the three agencies, you will often find that the information on them is not identical. Often, one will miss a debt that is shown on another, or there will be a small difference in how they report an account.

Because the three bureaus are in competition, they don’t generally share information with one another. While you work to repair your credit, it is important to request your reports from all three bureaus. If you find errors, make sure to request corrections directly from all three reporting agencies. All disputes must be escalated to respective credit reporting agencies so that proper corrective actions are taken right away. Removing inaccurate information from your credit report can significantly improve your score.

3. There doesn’t need to be just three.

At the current time, there are three major credit bureaus. But, there are also other credit bureaus that you may run into in other situations. ChexSystems keeps track of people’s history with bank accounts. If you’ve bounced checks or overdrawn accounts in the past, their reports can keep you from getting new accounts. There are also credit reporting agencies that deal with specific types of debt, such as rent-to-own furniture or other sub-prime loans.

Over time, we will see more companies offering credit reporting services. Plus, the three credit reporting agencies are starting to add more services for both consumers and lenders. TransUnion is now offering a credit score that is similar to your FICO credit score. While this score may not be used by many lenders, it can give consumers a ballpark idea of their credit scores and help them determine whether they will qualify for credit cards, car loans or mortgages. By keeping up to date on what credit reporting agencies are out there and being used by banks, you can empower yourself to protect your financial future.

A valuable tip here is to check your credit score for all the three business credit reporting agencies. This will help you compare the credit report and better identify erroneous items or negative information pulling down your score.

Credit Agency Response Period – How Long Do I Wait?

The credit bureaus are somewhat of a lifeline to your credit score. They’re also the entities that you need to take up errors on your credit report with. It’s estimated that as many as one out of every three Americans has an error on their credit report, errors which can negatively impact one’s score and purchasing ability. However, it’s possible to dispute negative items or errors on a credit report, a process that consists of corresponding via mail.

But just how long does it take to hear back from the credit bureaus on such issues? Here’s a timeline of what you can expect for the credit agency response period:

 

Credit Agency Response Period – How long does it take?

  • After your initial mailing, you should initially hear back from the credit bureaus within a couple of weeks. However, this initial response is usually not a resolution to the issue you presented. Generally, it’s more of a confirmation that they’ve received your correspondence and are investigating the matter. (You might also choose to send the letter with a return receipt requested so you can confirm that it was received.) It’s worth noting that a credit bureau has to respond to your inquiry within 30 days, or they must remove the negative item listed, per Fair Credit Reporting Act regulations.
  • A credit bureau’s investigation cycle, including mailing of the findings, usually takes about 45 days.

While you certainly want the credit bureau to respond informing you that they’re investigating your dispute, that’s not always the case. They may also respond citing your dispute as frivolous or irrelevant, or send you a rejection letter.

 

As you can see, getting a negative item from your credit report removed is not something that happens quickly – these things take time. So if you believe that there’s an error on your report that will raise your credit score enough so that you qualify for low-interest financing following removal, be sure that your expectations match reality. You can’t dispute the item one day and then apply for a mortgage or car loan the next and expect things to have been sorted out. Hence, be sure that you periodically check your credit report so that you can sniff out errors sooner.

Mistakes When Checking Credit – What to look for

Stop Making These 6 Mistakes When Checking Your Credit
If you’re not checking your credit at least once a year, you’ve leaving yourself a risk of identity theft or allowing a bad debt to build on itself.  ave your money in the long run by tracking your credit carefully. Just make sure to avoid these six common Mistakes When Checking Credit

Paying for Free Reports

Under federal law, you’re entitled to one free credit report each year. You can get your free report online in a matter of minutes and it won’t cost you a penny. If you haven’t gotten your free report this year, don’t even think about spending a dime until you do.

Only Checking With One Bureau

There are three big national credit agencies out there, and they all work separately. That means you credit could be perfect according to one agency and absolutely awful according to another. They all get their information at different times and from different sources. As a result, you need to check your credit with each agency to get the full picture.

Asking For the Wrong Score

Different industries use different formulas to calculate your credit-worthiness, so you can get misleading information by asking for the wrong credit report. If you want to know if you qualify for a new mortgage, for example, don’t request a report tailored to credit card companies. They use different criteria, so the report won’t do you much good.

Misinterpreting the Score

You need to understand the scales used on your credit score to get a sense of what the number means. While most FICO scores operate on a scale from 300 to 850, others use a scale from 150 to 950. Just taking a quick glance and seeing the number 650 on a paper doesn’t actually tell you much. Check the scale to see where you fall relative to others. Also, don’t just look at the score. Check for any listed debts in poor standing, too.

Not Keeping a Copy

Save yourself a big headache by always keeping your credit reports stashed away somewhere safe. Even if you’ve got perfect credit without a black mark anywhere, having a paper copy in your records can help you if you need to contest false reports or charges in the future. For example, if an unpaid car loan suddenly shows up on your report next year, having an old copy to compare against could prove very valuable. Just make sure to stash old reports somewhere safe to reduce the risk of identity theft.

Getting Obsessive

You checked your report last year and found a score of 760, but this year it’s suddenly down to 758! What on earth went wrong? Absolutely nothing. Your credit score naturally fluctuates by a few points all the time and it’s nothing to worry about. Don’t stress out about tiny changes. That two-point drop might reflect a tiny change on your credit card balance or a tweak in the agency’s calculations. It doesn’t signify anything important about your credit, so don’t fret about it.

Report Resolution- About to Change in a big way!

Credit Reporting And Resolution About to ChangeMany people have experienced hassles when trying to fix errors on their credit report. These errors can significantly impact your credit score and make it harder and more expensive for you to buy a home, open a new line of credit or even to get certain jobs and insurance policies. But, in the wake of a multi-state investigation, the three major credit reporting agencies have agreed to improve the way they handle credit report error sand disputes and reporting of medical debt.

The Investigation

TransUnion, Experian and Equifax were the subject of an investigation that started in 2012 and spanned 31 states. Investigators looked into the way that they handled report resolution and consumer disputes, the accuracy of the reports that they issued and the way that they marketed paid-for services like credit monitoring to people who contacted them to dispute their reports. The investigation culminated in an agreement earlier this year that will change the way that they handle errors and medical debt and also require them to be more proactive when resolving disputes over information on credit reports.

Changes in Report Resolution Process

The changes will go into effect nationally over the next six to 39 months. Among the changes that consumers can expect:

  • Reviews from trained employees. When people submit documentation that there is an error in a report, employees at the reporting agencies will now be required to investigate and resolve disputes.
  • Different handling of medical debt. About 43 million Americans have past-due medical debt on their credit reports. Under the new rules, medical debt will not be reported until after a 180 day waiting period. This gives insurers time to apply payments and consumers time to deal with debt that their health plans don’t cover. In addition, medical collections that have been, or are being paid by the insurance, will be removed from the credit report.
  • A database of bad data furnishers. A list of creditors that have made erroneous or false reports will be maintained by all three agencies. They will be required to give this information to states upon request.
  • No marketing during phone calls. When a consumer calls to dispute an entry on a credit report, the agencies will not be allowed to market services like credit monitoring until after the dispute part of the call has ended. Additionally, they will be required to tell customers that they are not required to buy a product to dispute a report.
  • A better, more detailed system. Under the new system, it will be easier to share data.
  • A clearer escalation process. When someone is dealing with a complex problem such as identity theft, fraud or mixed up files, there will be a process to escalate the issue and handle the resolution.
  • Information about mixed files. When one person’s information winds up on another person’s report, the agency that discovers it must inform the other two.
  • Shared documents. When someone disputes an entry on their report, the agencies will now have to provide the documents to the creditor that initially filed the entry.
  • More credit reports. Now, if someone disputes an entry and a change is made, they can get another free report.

Between these changes, it is hope that people will have an easier time with credit repair and will be more empowered to handle financial and credit issues. By making it easier for people to control what goes on their credit reports, officials hope to make it easier for people to get financial opportunities and increase their financial success.