We use credit for almost everything these day – when renting an apartment, financing a large-scale purchase like a car, or simply buying groceries at the supermarket. But you may not be aware of the fact that all of your credit transactions are recorded and compiled – and that landlords and employers frequently check an applicant’s credit history to determine if they’re worth the risk as a good candidate for becoming a tenant or an employee.
A credit report is a thorough compilation of your financial history, detailing your various obligations and any activities that take place around those obligations. When you incur a debt of any size (e.g. car loan, personal loan, credit card, mortgage, or bank line of credit), your credit report tracks a great deal of relevant information, including but not limited to, the date you began that obligation, the course of your payment history and when the creditor deems your obligation fully satisfied.
This information is received and maintained by three independent credit bureaus – Equifax, Experian, and TransUnion. Where does the information come from? In most cases, it’s provided by the creditors, as required by the Fair Credit Reporting Act (15 U.S.C. § 1681 et seq.).
Problems To Watch Out For
But the process isn’t foolproof. Problems with an individual’s credit report occur all the time. And you should never rely on either the creditor or the credit bureau to correct those errors – or even notify you that an error took place.
Problem #1: Inaccuracy. Mistakes happen more often than people think. I’ve talked before about how a creditor accidentally sent a delinquent report to a credit bureau on an account that a client had no recollection of opening in the first place. It turned out that the creditor superimposed two of the numbers in the account holder’s social security number, causing the delinquent account to be reported against my client’s credit. My client noticed this error when she went to buy a car and the finance officer could not offer her a reasonable interest rate due to the delinquent account (which apparently had been negatively reported on my client’s credit for well over a year). While my client was able to contact the creditor and promptly have the problem corrected, she lost her opportunity to buy the car she wanted and had to go back to looking for another car.
Problem #2: Creditor errors. A creditor may report that you failed to make a payment on your loan, when in fact you did. Or, a creditor may report a loan obligation as still outstanding, when in fact you’ve paid in full.
Problem #3: No reports at all. You may be making payments on a loan or other debt obligation, but the creditor simply isn’t reporting this activity to the credit bureau as they’re supposed to, therefore depriving you of positive credit.
Problem #4: Identity theft. If someone’s stolen your identity, he or she can open a credit account using your name and Social Security number and begin making purchases you know nothing about. All of this perpetrator’s illegal activity will go onto your credit report (negative reporting as you can only presume that the individual won’t be paying the bills as they come in). And, since that individual may not bother to include information about your mailing address, there’s a good chance you won’t receive bills and other notices, leaving you completely unaware of your mounting obligations.
The critical thing to remember is, credit bureaus are not required to verify the information they receive and creditors’ reporting processes, especially with larger companies, are usually computer-generated without regular review mechanisms. It’s entirely up to you to bring a problem to their attention. And, as you can see from my client’s example above, failure to identify the problem in a timely manner may deprive you of meaningful opportunities (car, house, employment, etc.).
Start by periodically reviewing your credit report. Here are actions you can take:
- Contact a bureau directly through its website and order a report. You are entitled to one free copy of your credit report every 12 months from each of the free nationwide credit reporting companies (Equifax, TransUnion, and Experian).
- Look into other entities which offer regular or periodic opportunities to review your report. For example, some credit card companies offer to provide a credit report to you as a benefit for signing up for their card.
- Visit www.annualcreditreport.com, a free service offered by the federal government, and request a copy of your credit report.
After reviewing your credit report, you should promptly report anything you believe is in error. Unless you say something, neither the creditor nor the credit bureau will take any action. Many of these disputes can be done through the credit bureau’s dispute resolution service. It’s also a good idea to follow up with creditors themselves. Most importantly, be very specific about any errors you find and be sure to keep copies of any correspondence or documentation sent to or received from the creditor.
Regular monitoring of your credit, prompt action to resolve any discrepancies, and perseverance in dispute resolution will go a long way in ensuring that your credit is there for you when opportunity knocks.
Are you in need of legal counseling for debt issues or have any questions regarding the above? The Law Offices of Ian S. Topf offer free consultation in a variety of issues, ranging from bankruptcy, family law and estate planning to traffic violations and landlord/tenant disputes.