Last week's column addressed the issue of Credit Bureaus and why you should obtain your own credit report once a year. As you know, credit bureaus simply report information supplied to them by the credit grantors. They make no representation that they are rating your credit. Each creditor or lender has different criteria for the extension of credit. Understanding this fact, we can appreciate why one credit grantor or lender will reject an individual and another will accept that same person.
As I have mentioned in prior columns, many people do not know what information is reported by the credit bureaus. When a credit report is pulled from one or more of the three credit reporting companies namely, Experian (formerly TRW), Transunion or Equifax we receive a host of information. Any bankruptcies filed within ten years of the date of the report, law suits and judgments within the last seven years, tax liens within seven years, collection accounts within seven years and any adverse financial information within the last seven years may be on one's credit report. The Fair Credit Reporting Act does allow the reporting of arrests, indictments and convictions to be entered onto one's credit report. Seven years is also the magic number for this area. This is not something that is normally reported by credit bureaus, but it is permissible. If you think you have discovered a timeline trend here, you are right. The key numbers to remember are seven & ten. Almost everything relating to credit, particularly negative credit will be reported for seven years. After seven years the negatives "should be" removed from your credit report. Bankruptcies, however, will remain on the report for ten years. There are two exceptions to the seven-year period. They are an application for life insurance over $50,000 or an application for employment at an annual salary of $20,000 or more.
During 1996,1,125,006 personal bankruptcies were filed in this country, the greatest number of bankruptcy filings in history, up over a quarter of a million from 1995. The 1996 number was up almost 800,000 compared to 1985. Figures just released on August 15, 1997 show us to be on track to surpass the 1996 figure. For many people, filing for bankruptcy is a last resort. Circumstances have made it impossible to get out from under the financial burden they carry. A bankruptcy will stay on the report for ten years and all the creditors involved in the BK will be listed on the credit report. Experian reports an account listed in a bankruptcy as follows: "this account is included in or discharged through bankruptcy chapter 7, 11 or 12."
Many people, knowing that life may be difficult for an extended period if there have been instances of late payments, bankruptcy or foreclosure, turn to what are called "credit repair companies" or "credit repair clinics." I offer a word of caution about credit repair companies. If there is an error on your credit report, you can repair, clean up, delete, expunge, and/or make whole your credit report on your own. However, if there is a legitimate negative report, there is no obligation on the part of the creditor grantor or credit bureau to remove the entry. We have found it extremely advantageous to go directly to the creditor and discuss the situation. Many credit grantors are not as unforgiving as you may expect and may work with you regarding adjustments. Credit repair companies attempt to remove legitimate items from a report. If they do get those items removed, there is no guarantee that those same items will not show up in the future. The creditor may investigate the claim and find it to be either frivolous or wholly incorrect. Then, the creditor can reinstate what has been deleted. I have just heard about a client of a local real estate agent who engaged a credit repair company for a monthly fee of almost $40.00 to clean up her report. After paying her monthly fee, nothing was taken off her credit report. The last update I received is that the telephone number of the agency was disconnected.
If you have problems or know of individuals with credit problems, there are good nonprofit consumer counseling entities to help you, generally at no cost. Most of these organizations are supported by the creditors with whom you do business. If you need help, you can call the National Foundation for Consumer Credit at (800) 388-2227 for a referral to a local chapter of the Consumer Credit Counseling Service, Bankcard Holders of America (protect the rights of credit card holders) at (540) 389-5445, Call for Action (a problem solving hotline for consumers) at (301) 657-7490 or find help online with Debt Counselors of America @ http://www.dca.org. Don't be afraid to ask for help.