Overview of Credit Reporting Agencies and Your Rights

J Thomas Black
Board Certified, Consumer Bankruptcy Law- Texas Board of Legal Specialization

Not Certified By the Texas Board of Legal Specialization. No designation has been made by the Texas Board of Legal Specialization for a Certificate of Special Competence in this area.

My name is Tom Black, Attorney at Law. I am licensed to practice law only in Texas, and have been since 1982. I am Board Certified in Consumer Bankruptcy Law by the Texas Board of Legal Specialization. 

This is a general discussion about credit reporting agencies, otherwise known as credit bureaus, and your rights under federal and state laws to have an accurate credit report. I will also give you some general information about what can be done to correct inaccurate or derogatory information, how to improve your credit report, debt negotiation, and the services offered by my office. 

For my past or present bankruptcy clients, this message will also be useful. While a bankruptcy can generally show on a credit report for 10 years, a great deal can be done to improve a credit report even after a bankruptcy. Most people are able to re-establish some good credit within 2 years of completing a bankruptcy. 

Also, new Fannie Mae guidelines provide that a bankruptcy on a credit report won't prevent someone from obtaining a mortgage at "market" interest rates so long as you have been out of a bankruptcy for at least 2 years and have paid on existing credit accounts on time. The time can be as little as 1 year to obtain a mortgage, if there was a good reason for the bankruptcy, such as an illness or loss of job.

Please keep in mind that this is intended as general information only, and is not to be used as a substitute for legal advice for you in your particular situation.
 

THE "CREDIT BUREAU"


People think of a CREDIT BUREAU and don't know what it means. Credit bureaus, known as Credit Reporting Agencies (CRA's) under the law, are companies that assemble vast amounts of information on American consumers such as you, and the bill-paying habits of Americans, and sell this information to banks, mortgage companies, retail stores, and other lenders, as well as employers, insurance companies, and others that have a permissible purpose for the information, for a fee. 

There are hundreds of what might be called credit reporting agencies, but there are only 3 major CRA's: Equifax, TransUnion, and TRW. These 3 each claim to have files on 90% of the adults in the U.S. One study of credit reports showed that half of all credit reports contain at least one error, and many contain multiple errors. 20% of the errors were found to be bad enough to adversely affect an application for credit.

If you apply for a loan, you may not know which CRA the particular lender subscribes to, and each one prepares their own credit report on you. Some lenders look at more than one report.

CRA's are very important to the U.S. economy. They provide a source of (hopefully accurate) information so that a lender can make an informed decision about whether or not to loan a particular borrower money, or finance a home or vehicle or other purchase. Your credit report is also, obviously, very important to you, when you go to rent an apartment, get a job with certain employers, or purchase insurance.

You may think that you have to authorize someone to look at your credit report, in order for them to legally look at your credit report. This is not true. Anyone with a PERMISSIBLE PURPOSE can review your credit report on file with a credit reporting agency. A credit report on you can be obtained to help collect a credit account, either by a collection agency or attorney, to check on your eligibility for a job or insurance, or to get a government benefit or license where financial responsibility is an issue.

 

WHAT IS CREDIT IMPROVEMENT OR CREDIT RESTORATION?


There are three steps to improving or restoring a bad credit report. No. 1 is to challenge inaccurate information directly with the credit reporting agencies. Under the Federal Fair Credit Reporting Act (FCRA), CRA's must verify disputed information within a reasonable time, or delete the derogatory information from your credit report. If they don't, you may have a cause of action (a lawsuit) against the CRA's under the FCRA for damages. You may also have causes of action against them under state law for defamation and negligence. 
 

DEBT NEGOTIATION.


The second step is, with respect to the remaining, accurate but derogatory information, is to negotiate with the creditors, individually, to settle with them, and as part of the settlement, remove the derogatory information from your file. 

This is the step where it is particularly helpful to have an attorney helping you instead of just a credit consultant, or doing it yourself. Sometimes, the credit transaction itself had errors in it that may entitle you to money damages, or at least be a "bargaining chip" that can get the derogatory credit information removed or fixed. 

For example, if the interest rate charged you was too high, there may be a usury claim. If the interest rate or finance charge wasn't expressed accurately on the loan papers, there could be a claim against the creditor under the Federal Truth-In-Lending Act (TILA). Perhaps you were sold shoddy merchandise on credit, giving you a claim under Deceptive Trade Practices Act (DTPA). 

An attorney can write a demand letter to these companies, and with a legitimate complaint like this, these companies would likely be happy to remove derogatory credit information to resolve a legal problem, instead of having to face going to court.

Even if you don't have a complaint about the debt, creditors are often willing to settle the account in order to get something for it, and as part of the bargain, remove derogatory information from your credit. This usually involves paying part of the debt, or paying part or all of the debt over time, with a written agreement that the balance of the debt, if any, will be forgiven and the derogatory credit information removed.
 

BUILDING NEW CREDIT


The third step is, with respect to accurate but derogatory information that cannot be negotiated, is to build additional, good credit for you. This will help you get credit. You see, lenders like banks and mortgage and finance companies want to lend you money, even if you have had credit problems in the past. What must be shown them is: (1) that you have the present ability to pay, and (2) that since you had your credit problems, you've paid other accounts on time in a responsible manner. 

 

"CREDIT REPAIR" COMPANIES OR "CREDIT DOCTORS"


If you're looking for someone to help you improve or restore your credit, be careful. There are many companies that promise to "repair" your credit, and remove information about bankruptcies, repossessions, foreclosures, lawsuits, etc. from your credit report. If someone promises to do these things, avoid them. There is no legal way to delete accurate information from your credit report, particularly Public Record information like bankruptcies.

There are illegal ways. Ways that can get you into serious legal trouble. One way is to send a blizzard of mail to the credit bureaus, and dispute all of your derogatory information, whether accurate or not. When the credit bureaus are unable to continue to re-verify the bad credit marks, supposedly the bad credit must be removed. 

The credit bureaus are onto this routine now, and if they feel that a person is trying to "sanitize" a credit report in this manner, without having a legitimate dispute of the derogatory information, they are simply refusing to change that report, and now they also put a code on the credit file so that you can't further change it.

You can damage your own file, by making repeated challenges to legitimate information, for one thing, or by causing there to be numerous inquiries on your report, which also look quite bad to a potential credit grantor. In other words, if you try to do this work yourself, fine, but if you're not successful, don't assume that someone will be able to straighten it out for you. In other words, it can get worse.

Another illegal way to improve or restore credit is what is called "file segregation". This involves getting a new social security number, and basically tricking the credit bureaus into opening a new clean credit report for you. This is outright fraud, and will likely get you a personal interview with an FBI agent. This sort of thing is not worth it, folks. Credit is not that important, to risk going to jail, or do something illegal. 

Besides, it's just not right, defrauding creditors into giving you credit by assuming another identity. If you run into someone trying to get you to do this, call the local U.S. Attorney's office, or your state's Attorney General's office, and turn them in. You'll be doing us all a favor- we all pay for stupid pranks like that through higher prices for goods and services.
 

BE CAREFUL

Services that do credit repair or restoration work, with very few exceptions, are subject to the Texas Credit Services Organizations Act, or other state or federal laws. The Texas law requires that credit services organizations be registered with the Texas Secretary of State, that they post a bond with the Secretary of State before they can accept money "up front" from you, that they use a certain kind of contract, that they have a 3 day cancellation provision in their contract, and other important protections.



Attorneys, real estate brokers and mortgage companies are exempt from this law. But if you decide to hire a non-attorney to do this work for you, at least call the Secretary of State's office in Austin to make sure the company is legitimate. If the company is not even in compliance with this law (or your local law), then you may be about to get cheated. 

I hope this information is useful to you. Tom Black