An individual’s credit score determines a lot in their lives. The lower the score, the fewer are the options available to an individual, and the less willing are lenders to work with them. Consequently, a person’s credit report is a determining factor in their mobility.
A credit report is a detailed breakdown of an individual’s credit history, as prepared by a credit bureau. The bureaus function by collecting financial information about people, and the lenders use these reports to determine the creditworthiness of loan seekers. Equifax, TransUnion, and Experian are the three national credit reporting bureaus and collect consumers’ financial details, although there might be key differences.
It must be kept in mind that credit repair, which is removing or correcting inaccurate information from one’s credit report for a more favorable depiction of one’s finances or credit score, can be done by oneself or by hiring a company that specializes in credit repair. Neither path is without its issues, but it is important to understand every situation to prevent scams and further damage caused to one’s credit.
[1.0] HOW TO GET COMPANIES TO REMOVE NEGATIVE INFORMATION FROM YOUR CREDIT REPORT
Since the credit report determines the creditworthiness of the individual, removing negative and often untrue information from an individual’s report is paramount. Negative data can be past financial missteps on the part of the consumer, but they can also be errors on the credit bureaus or companies/creditors. It is not uncommon to have another individual’s account reported on one’s file, and often an expired collection item on one’s report.
Disputing inaccurate information is right. In fact, individuals can submit the request to dispute the information online or by mail, with documentation of the credit report with the error. The FCRA, as mentioned in the succeeding section, deals with disputing inaccurate information on one’s credit report.
Disputing a negative entry will not work if the information is written as accurate. However, one can write to the creditor or the collection agency asking them to remove the negative entry out of goodwill. A goodwill letter cannot be sent to the credit reporting bureau and is essentially the consumer asking the creditor to erase the negative mark out of goodwill or mercy through an explanation of the individual’s situation.
This is most effective if the consumer is trying to remove late payments, paid collections, or paid charge-offs. However, the success of this strategy depends solely on the person reviewing the letter, and the nature of the negative mark one is trying to remove.
Negotiating pay for delete
Pay-for-delete is a method of paying and requesting the removal of a derogatory item from your credit report. Negotiating a pay for delete situation with the creditor or collection agency is an option, as long as the individual gets the agreement to pay the unpaid debt in return for the deletion of the negative entry in writing.
Pay for delete cannot be termed a default option. Most creditors would not want to run the risk of violating the option offers limited success because most creditors may not want to violate the agreement to report accurate and complete information to bureaus as required under the FCRA.
Ultimately, the only sure way to remove accurate negative information is to wait for it to expire. Most negative information stays on the report for seven years, though information like bankruptcy can stay up to ten years. However, credit scores can be improved to minimizing other financial debacles, and not opening another account. Credit repair cannot be done by transferring the debt from one account to another, nor can this be done by transferring the balance from one card to another. The amount owed will still be the same, and an added bonus would be the balance transfer fees. Consolidating debt onto one credit card also does not erase the debt.
Credit repair agencies
A credit repair agency is an organization that helps consumers to deal with their bad credit score and improve it. This is because consumers cannot always be expected to have enough knowledge to rectify errors, and cannot always have the time to do so, especially lower-income groups that are often targeted by predatory companies. Such consumers can get the help of credit repair agencies to file their disputes.
The Federal Trade Commission specifies the number of unauthorized agencies that scam individuals who provide personal information, and the verification of authenticity is absolutely necessary to prevent scams from taking place. It must be remembered that paying companies to report accurately reported negative information from a report will not work, acting as a further drag onto the finances of the individual while still having the information on the report. Credit repair agencies cannot lie to creditors or encourage an individual to lie, alter their identity, or misrepresent their services. They also must provide a contract and a three-day cooling-off period.
[2.0] WHAT IS THE FAIR CREDIT REPORTING ACT
The Fair Credit Reporting Act is responsible for the safe handling of information that is collected by consumer reporting agencies. Essentially, amassed information from a credit bureau, medical information company, or a tenant screening service has to be protected, and cannot be disclosed to anyone whose purpose does not fall within the ambit of the Act.
Passed in 1970, the FCRA helps consumers understand what actions they can take in regard to the information in their credit reports. This is extremely important information, as information is gathered about consumers all the time and isn’t limited to merely the three major consumer credit bureaus [Experian TransUnion and Equifax.]
Information is being gathered about consumers all the time: In addition to the three major consumer credit bureaus (Experian, TransUnion, and Equifax), there are other organizations that may collect and use your information. For example, The Fair Credit Reporting Act also imposes a duty onto companies that are required to provide information to the aforementioned consumer reporting agencies. Companies herein are required to investigate the disputed information, and the consumer needs to be notified when adverse action is taken on the basis of said information.
This means that every time a decision is taken after obtaining the consumer information, especially for credit, insurance, or employment purposes, the decision must be explained and communicated to the consumer. This is pertinent, especially considering that banks and credit unions may use information from the consumer’s credit history to determine their fitness for loan approval.
Together with the Fair Debt Collection Practices Act (FDCPA), the FCRA forms the foundation of consumer rights law in the United States. It is enforced by the US Federal Trade Commission, the Consumer Financial Protection Bureau, and private litigants.
Key aspects of the FCRA
The FCRA is special insofar as it was one of the first instances of data protection law that understood the repercussions of the computer age. As such, it was highly progressive and set the tone for information protection almost globally from the 70s. The regulation of ‘secret databases’ is what propelled the act forward, understanding that individuals have the right to see and challenge information in databases about themselves and that this information needs to have a shelf life, i.e., cannot be cataloged forever.
The FCRA operates primarily on providing the individual with information as to who can access one’s consumer report and for what. A consumer report contains information about the consumer’s credit, bill repayment history, and the status of the consumer’s credit accounts, making note of how often payments are made on time, usage of credit, and whether a debt or bill collector is currently recovering owed money. However, this can also contain rental repayment information or public records such as liens, judgments, and bankruptcies that provide insight into your financial status and obligations.
What this means is that the individual has the right to be informed whether their credit file has been used against them to deny their application for credit, employment, or insurance. However, it also gives the consumer the power to access this report and allows the consumer to question all the information that a consumer reporting agency has about them. This process is called file disclosure, and the process allows the consumer to own their information and understand how it is being used. The FCRA also provides the option to opt out of the prescreened offers of credit.
Since the information in the file is often used to adverse effects, the FCRA also heavily restricts who can access this credit report, and even allows one to put a security freeze on this report. This means that potential lenders are not allowed to check the credit report without the individual themselves knowing, consenting, and lifting the freeze for the lender. It adds security and autonomy to the credit process and even allows the consumer to dispute inaccurate or incomplete information on the report, albeit with a data furnisher to attest to the veracity.
What happens if there are inaccuracies in one’s consumer report?
The FCRA shifts the responsibility of inaccuracies in an individual’s information onto the credit reporting company and the information provider. It simplifies the process for the consumer and requires both the aforementioned parties to correct inaccurate or incomplete information about the individual.
What is required from the consumer, however, is for them to mention what information they believe is inaccurate about them. This needs to be done in writing. This provides a record of the complaint, insofar as credit reporting companies must always evaluate the items in question except in issues of frivolous complaints. Additionally, they must forward all relevant data about the inaccuracy to the information providing company, and bear the responsibility of correcting information in the consumer’s file as well as notifying all three nationwide credit reporting companies.
Upon the termination of the investigation, the credit reporting company is bound to provide a free copy of both the results and the report [which does not count as the consumer’s annual free report] and absolutely cannot put a disputed item of information back into the file unless it’s verified to be accurate and complete.
[3.0] THE FAIR AND ACCURATE CREDIT TRANSACTIONS ACT.
The Fair and Accurate Credit Transactions Act of 2003, also called FACTA, amended the Fair Credit Reporting Act. It added provisions that were intended to improve the accuracy of consumer credit records and allows them to access one credit report annually at no cost. In cooperation with the Federal Trade Commission, the three major credit reporting agencies set up the website AnnualCreditReport.com to provide free access to annual credit reports. The report requires the consumer’s name, address, Social Security number, and date of birth. Additionally, the previous address of residence may have to be supplied if the consumer has moved in the last two years. It must be borne in mind that each nationwide reporting company will specifically ask the individual different information for [A.] security purposes if they ask information only the consumer will know or [B.] if the source of information in the consumer file is different for each company.
The Act promises transparency. This is seen especially as risk-based pricing notices and credit scores are required to be communicated to consumers in cases of loan denials or less favorable offers of credit. Furthermore, its attempts to deal with issues of identity theft, allowing consumers to place fraud alerts in their credit files if identity theft is suspected, or if deploying overseas in the military, thereby making fraudulent applications for credit more difficult. To ensure security, it also requires sheltered disposal of consumer information.
The FACTA has been updated, especially since data security is a breakneck-paced sector. ‘Red flags’ and identity theft provisions were amended by the Red Flag Clarification Act of 2010.
Key Features of FACTA
To add to security, the Act prohibits businesses from printing more than five digits of any customer’s card number or card expiration date on any receipt provided to the cardholder at the point of sale or transaction, ensuring statutory damages arising from the violation of the same as long as the receipt itself is printed rather than handwritten or imprinted.
Secondly, the Act established the Red Flags, Rule, in order to investigate potential identity theft. This rule called for the joint laying down of regulations to prevent identity theft specific to financial institutions and creditors by the federal banking agencies, the National Credit Union Administration, and the Federal Trade Commission, keeping in mind both new and existing accounts. Consequently, there emerged regulations like the implantation of an Identity Theft Prevention Programme, or the usage of consumer reports to respond to Notice of Address Discrepancies. Additionally, the Red Flags Rule was required to provide a detailed and clear procedure for debit or credit card issuers to deal with a change of address. institutions and creditors. The Act also requires any reporting agency to block the reporting of any information in a consumer’s file that the consumer identifies as information that originated from alleged identity theft.
The Red Flags rule also crucially required mortgage lenders to be transparent with the consumers’ credit scores, bureaus, and scoring models. The institution of a Credit Disclosure Notice was helpful herein, where factors affecting credit scores and the range of available scores were identified and made accessible from credit reporting agencies.
Another key item was the requirement that mortgage lenders provide consumers with a Credit Disclosure Notice that included their credit scores, range of scores, credit bureaus, scoring models, and factors affecting their scores. This form is typically available from credit reporting agencies, and many will send this directly to the consumer on the lenders’ behalf.
The goal of the credit card laws is the enforcement of federal financial laws in an effective manner such that all consumers have fair and competitive access to financial products. After all, the protection of one’s rights as a cardholder is paramount. Although they come with concerns, there are laws to protect a cardholder, and regulations guard against unfair lending practices. It is not fair that only the privileged get access to a credit card, and the laws in place agree. Using a credit card with more confidence comes with knowing about the laws put in place for the consumer’s benefit.
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1. In consumer-facing businesses, the cooling-off rule can more commonly refer to a consumer protection law regulated by the Federal Trade Commission (FTC), that allows a buyer to release themselves from a purchase agreement within a set number of days of a purchase
2.Pub. L. No. 108-159, 117 Stat. 1952, codified to 15 U.S.C. §§ 1681-1681x
3.The FACT Act contains seven major titles: Identity Theft Prevention and Credit History Restoration, Improvements in Use of and Consumer Access to Credit Information, Enhancing the Accuracy of Consumer Report Information, Limiting the Use and Sharing of Medical Information in the Financial System, Financial Literacy and Education Improvement, Protecting Employee Misconduct Investigations, and Relation to State Laws
4. Facts for Consumers, Federal Trade Commission, March 2008
5.Pub. L. 111-319, 124 Stat. 3457
6. FAIR AND ACCURATE CREDIT TRANSACTIONS ACT OF 2003, Public Law 108-159, 108th Congress, pp. 117 STAT. 1960–117 STAT. 1961,