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Credit Report Problems Are Even Worse Than We Thought

Woman stressing over debtsWe reported not long ago that the FTC (Federal Trade Commission) had found errors in 20% of our credit reports. And these were errors that could have actually lowered our credit scores. Well, according to the FTC, it’s actually worse than 20%.

New FTC numbers

The FTC now says that 26% of us have material errors on at least one of our three credit reports. Even worse, 5% of all consumers have errors that when corrected, would place them in a different credit score range so they would have lower interest rates on their mortgages, auto loans and credit cards.

Check your credit reports regularly

What this underscores is the need to check your three credit reports regularly. You can get them individually from the three credit reporting bureaus, Experian, Equifax and TransUnion Or you can give them simultaneously and free at the website www.annualcreditreport.com. However, many consumers choose to get their reports individually from the three credit bureaus at four-month intervals so that they can, in effect, monitor their credit reports year around.

Get any errors reversed

If you do find an error in one of your credit reports, you can get it reversed. In fact, according to the FTC, 80% of those who filed disputes over errors saw their credit reports changed.

Only 20%

This FTC study also found that only 20% of us check our credit reports every year. This means that 80% of us are failing to check them regularly. If you fall into the 80%, you may have an error in one of your credit reports that’s costing you money – in terms of the higher interest you may be paying on your credit cards, personal loans, auto loans or even your auto insurance.

How to dispute an error

Let’s say that you review your credit report from one of the credit bureaus and find that a lender you don’t even recognize reported that you had defaulted on a loan. The Fair Credit Reporting Act (FCRA) mandates that you can dispute this by writing a letter to the appropriate bureau contesting the information. The credit-reporting bureau then has 30 days to contact the company that provided the information and ask for validation. In the event the company can’t validate the information it reported or doesn’t respond to the credit bureau, that information must be removed from your record.

The effect of erroneous information

It’s important to get errors on a credit report corrected because it can have a very adverse effect on your credit score. Lenders generally look at what are called credit score ranges. For example, credit scores between 700 and 850 are considered to be very good or excellent. On the other hand, credit scores between 580 and 619 are in the low credit score range. And anything below 500 would be either poor or bad. This means if your score was sitting at 621 (average or okay) and an error in one of your credit reports dropped it to 618, you would now be seen as having a poor credit score, which could cost you money in higher interest rates.

A bankruptcy is the worst

If you’re having a problem with debt, there are a number of ways to handle it. Some will have an effect on your credit score and others won’t. As an example of this, if you were to go through consumer credit counseling it would have no effect on your credit score. But a bankruptcy will lower your credit score by as much as 200 points. If you have a low credit score to begin with, this could drop you into the category of bad credit score and make it very difficult for you to get any new credit. In fact, most experts say that this would stop you from getting new credit for two to three years.

“How Can I get My Credit Report Repaired?”

Payment overdueI saw this question posed on a forum by a woman who had a bad credit report and wanted to know if she should hire someone to repair it or if she should just contact her creditors herself. She also wanted to know how long she should wait after her credit report had been repaired before letting someone pull her report to see if she could “qualify for a house.”

Two fundamental errors

If you read this last paragraph carefully, you should have spotted two fundamental errors. First, despite what some Internet advertisers might want you to believe, there is no way to get credit repaired (more about this later). And second, since her credit report isn’t going to get repaired anytime soon, there is probably no way she would “qualify for a house”, i.e., get a mortgage.

Ethical credit repair

Bad credit reports can’t be repaired period. If there is negative information in your credit report that’s accurate, it cannot be removed and will stay there for seven years. Read the fine print in the ads for ethical credit repair companies and you’ll probably see that this is true. For example, if your search Google on the term “credit repair,” you’ll see a link to the website of Veracity Credit Consultants. Its page says“ Veracity works to remove errors, delete inaccurate negatives, and highlight good accounts. Notice how it says nothing about “repairing” or “deleting” accurate information.

What Veracity and other honest companies can do

As Veracity states, it and the other companies and attorneys you’ll find by searching on “credit repair” can get erroneous information removed from your report. If this information has negatively impacted your credit score, getting rid of it would definitely help both your score and your credit report. But again, remember there is nothing that can be done about accurate information.

Easy to get in, tough to get out of

The biggest problem with credit for many people is that debt is so much easier to get into than get out of. In fact, you can trash your credit in as few as three months by skipping payments and or by failing to make even your minimum monthly payments. Every expert I have read on personal finances has said that it’s critical to pay off your balances each month. Once you start carrying balances forward by making just the minimum monthly payments, you’re on a slippery slope. And if you start skipping those minimum payments, it’s certain that you’re on the way to big trouble.

Contacting her creditors

One thing this woman suggested that would make good sense is for her to contact her creditors as they might be willing to negotiate. This is especially true of credit card companies. They are staffed by hundreds of customer service agents who have been trained to be sensitive to their customers’ needs and to work with them. If this woman could show how she was in a serious financial bind, her credit card companies might be willing to give her a sort of recess of no payments for two or three months to work on her balances or they might suspend her interest charges for several months.

Debt settlement

It might also be possible for this woman to negotiate settlements with her creditors for 50% of what she owes or even less. This could work if she has not made even her minimum monthly payments for six months or longer. However, she would have to be a very good negotiator and would have to have the cash available to pay the settlements.

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