Fundamentals of Credit Repair
By Norman David Roussell
Goals of this Article
- Improve your knowledge of credit bureaus, credit protection laws and credit scoring
- Improve your understanding of the value of good credit
- Teach you how to read a credit report and repair damaged credit
Credit Facts
- Americans have over $1.7 trillion dollars in outstanding credit debt (approximately $6,500 per American)
- The average American eleven (11) credit cards, loans and other payment obligations
- There are over 7,000 credit card issuers in the U.S. with over 27,000 payment options
- There are over 205 million credit-active consumers in the U.S.
- 79% of credit reports surveyed in a national study contained either serious errors or mistakes of some kind[1].
The Credit Bureaus
A credit bureau is a storehouse of collected data on hundreds of thousands of individuals. Credit bureaus cannot report information regarding race, sex, religion or ethnic background. There are three major credit bureaus in the U.S.:
- EQUIFAX
- EXPERIAN
- TRANSUNION
Credit Protection Laws
The laws listed below are designed to protect both consumers and credit grantors from unfair or fraudulent credit transactions. U.S. credit protection laws include:
- ID Theft and Assumption Deterrence Act
- Equal Credit Opportunity Act
- Fair Credit Billing Act
- Fair Debt Collection Practices Act
- Truth in Lending Act
- The Wage Earner Plan (Chapter 13 Bankruptcy)
- The Fair Credit Reporting Act
- The FACT Act
Learn more about credit protection laws by visiting www.ftc.gov (Federal Trade Commission).
The Fair Credit Reporting Act gives you the right to…
- be told the name and address of the credit bureau responsible for preparing a credit report that was used to deny you credit, insurance or employment
- be told the nature, substance and sources of the information collected about you
- have incorrect information reinvestigated and removed if it cannot be verified
The Fair Credit Reporting Act does not…
- compel anyone to do business with an individual consumer
- apply when you request commercial or business credit
- require a credit bureau to add a new account to your credit file
The FACT Act
In December 2003, Congress passed the Fair and Accurate Credit Transactions Act (FACT Act). The FACT Act is a revision of the Fair Credit Reporting Act that includes key reforms such as-
- Every consumer has the right to receive a free annual credit report from each major credit bureau.
- The FACT Act creates a risk-based pricing notice for consumers who accept higher-priced credit.
- Credit bureaus must notify credit grantors of changes to databases resulting from a dispute.
- Credit grantors must correct successfully disputed items in their records.
- Credit grantors must accept disputes directly from consumers, not only through credit bureaus.
- Creditors must inform consumers the first time they plan to send negative information to a bureau.
Credit Scores
The credit scoring model was created by Fair Isaac and Company (www.myfico.com). The model, known as the FICO SCORE, uses a mathematical equation to determine an individual’s level of future credit risk. There are five components of the mathematical model that determine a credit score:
|
Score Component
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Accounts for
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Payment History
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35%
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Amounts Owed
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30%
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Length of Credit History
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15%
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New Credit
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10%
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|
Types of Credit in Use
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10%
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Every major credit bureau has a name for its credit score:
EQUIFAX = BEACON SCORE
EXPERIAN = PLUS SCORE
TRANSUNION = EMPIRICA SCORE
The three major credit bureaus have developed a standardized credit score known as the Vantage Score.
FICO scores range from 300 (lowest) to 850 (highest) (the higher the score, the better the credit rating). Nationally, 63% of all consumers have scores ranging from 650-799. These individuals are considered to have “fair to good credit.” A good target to build your credit score to is at least 680. Below is a breakdown of credit score ranges in America.
Value of a Good Credit Score
Sample: 30 year, fixed rate, $100,000 mortgage (Louisiana, July 2004)
A person with a 550 credit score (APR=8.891%, Note=$797) will pay $186,000 in interest or $78,926 more for the same house as someone with a 720 credit score (APR=5.655%, Note=$578).
Repairing Your Credit Step One: Obtain your 3-in-1 credit bureau report
Obtain a 3-in-1 credit bureau report from any of the major bureaus or Fair Isaac & Company. Each bureau will have a different set of data on you and on which to base your score (since your score is determined in part by comparing your data to the others in the bureau’s database), so it’s likely that you’ll have three different credit scores.
Every consumer has a right to receive a FREE credit report from each bureau. You can get the reports from www.annualcreditreport.com. Keep in mind the free reports do not include the credit scores. You need to pay a fee to get the scores.
You can also order a 3 in 1 credit report from any of the sources below. The cost will be around about $45.00.
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Company
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Website
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Telephone Ordering
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Fair Isaac & Co.
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www.myfico.com
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N/A
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Equifax
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www.equifax.com
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800-685-1111
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|
Experian
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www.experian.com
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888-397-3742
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|
TransUnion
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www.transunion.com
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800-888-4213
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Repairing Your Credit Step Two: Analyze your credit reports
Every credit report contains:
- Identifying information (Your name, address, social security number, etc.)
- Account information (Account grantor, number, balance, open or closed, etc.)
- Inquiries (Requests for your credit record)
- Public record information (Liens, lawsuits, etc., filed against you)
- Note: Identify inaccurate/negative information or errors in your report and challenge that information.
Repairing Your Credit Step Three: Challenge the information in your credit report
- Write letters to the bureaus disputing the inaccurate or negative items in your reports. For example, if a report says you were 30-days late on a visa payment and you believe you sent the payment on-time, ask the bureau to reinvestigate that entry with visa.
- Send the letters via certified mail, UPS, FedEx, or other traceable method.
- Do not use the online service provided by the credit bureaus.
- Be clear, concise and courteous when writing letters.
- Always provide the proper identifying information (include a picture ID).
- Always sign your reinvestigation request.
Results of the Challenge
By law, the credit bureaus have a “reasonable amount of time” to respond to your reinvestigation request. That amount of time is assumed to be between 30-45 days. If you do not receive a response from each bureau within 30-45 days, the negative information must be deleted from your credit files.
Once you receive your reports, they will indicate that one of three actions on the accounts you challenged:
- The file has been reinvestigated and deleted from the report.
- The file has be reinvestigated and updated with new information on the report.
- The file has been reinvestigated and no changes have been made to the report.
You should continue to challenge negative information until your credit scores are above 650 on average
Norman D. Roussell, MBA
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