Your Ultimate Guide to DIY Credit Repair. January

Transcription

1 Your Ultimate Guide to DIY Credit Repair January

2 Table of Contents Part 1 - Anatomy of a Credit Report Part 2 - Credit Scores vs Credit Reports Part 3 - Why Your Credit Report Matters Even If You Don t Intend to Borrow Money Part 4 - How to Resolve Errors on Your Credit Report Part 5 - How to Get Help Resolving Errors on Your Credit Report

3 Introduction So you ve recently checked one of your credit scores (we each have dozens of them, after all) and you re not thrilled with the results. Whether you knew your credit needed improvement or you find yourself shocked by the results, being graded on your credit can be a jarring experience. There s good news, though. First of all, a less-than-ideal credit score can be improved upon. Second of all, the reason your score isn t where you would like it to be might not even be your fault. Consider this: There have been 185,700 complaints made to the Consumer Financial Protection Bureau (CFPB) about credit reporting errors. 74 percent of those complaints were due to incorrect information on the report, such as inaccurate personal information or account terms. Credit scores shouldn t be confused with credit reports, which contain information about your credit history, including whether you pay your bills on time. Your credit score, on the other hand, translates the information in your credit report into a number. So if there are errors in your credit report, then your credit score could take a hit unnecessarily. When s the last time you checked your credit report? You might be shocked to find that something as simple as a mistake in your personal information (such as a transposed social security number) matters, but it can prove fatal to your credit score. And although many consumers aren t seeing the timely changes required by law after these complaints, the CFPB is working to change that. In the meantime, you can take action to make sure your score isn t being damaged by an error. This guide is designed to help. Here you ll discover helpful information for understanding your credit report as well as what you can do to prevent and resolve credit reporting errors. Let s get started! 3

4 PART 1 ANATOMY OF A CREDIT REPORT Part 1: Anatomy of a Credit Report If you think credit is a confusing topic, you re not alone. Here are a few quick facts about credit reports to get you started: 1. You can view your credit reports for free once per year at AnnualCreditReport.com. 2. Everyone has three credit reports one from each of the three major credit reporting agencies. These agencies (also known as CRAs) are Equifax, Experian, TransUnion. 3. It s important to check all three reports since companies don t all report to all three CRAs, your reports won t necessarily be identical. Once you get your report, all you have to do is review it. The report will be broken up into these main sections: Personal Information Public Records Accounts & Payment History Closed Accounts (these fall off your report ten years after they re closed) Negative Accounts (those that are missing payments or are in collections) Credit Inquiries And some of the things that aren t on your report include: Your income Medical information Your credit scores Here s a deeper dive into what you might find: Personal Information This section will include basic information about you, including the names associated with your credit accounts (especially relevant if you use both a long and short form of your name), your address, phone number, employer name, birthdate and social security number. This section may also list personal statements, including those indicating that you re working with a credit counselor to pay off outstanding debt. Statements like this can also show up in your accounts section, if, for example, you re disputing a certain item. 4

5 PART 1 ANATOMY OF A CREDIT REPORT Again, this section won t have things like your income (or race or religion) and neither will the rest of your report. This is a report of your financial behavior alone. Check Your Social Security Number! One of the most important things to check here is your social security number. If it s been entered incorrectly on your credit report, then someone else s financial information could be showing up on your report. Check this and all the other details here carefully so you can be sure only your activity should be on the report. Public Records If legal action has been taken against you relating to your finances accounts, that information may show up here. Tax liens and civil judgments may be listed on your credit reports, for example, as will bankruptcies. The amount of time for which these items stay on your report depends on the item. For example, a Chapter 7 bankruptcy (in which you don t repay your debt) stays for ten years after you file, whereas a Chapter 13 (in which you repay some of your debt) is removed after seven years. Like Chapter 13 bankruptcies, civil judgments stay on your credit report for seven years. Tax liens vary. If you don t pay your tax lien, it will stay on your credit report for 15 years. If you do, it will fall off seven years after they re paid in full. Accounts & Payment History Here comes the meaty section: your accounts. These can show up as Open, Negative, or Closed. They are all also categorized as installment accounts or revolving accounts, depending on what type of credit you re using. Loans such as student loans, mortgages, personal loans, and car loans are all considered installment accounts. The easy way to remember this is because these are loans in which you borrow a lump sum, and usually pay them back in equal installments each month over time until the loan is paid in full. 5

6 PART 1 ANATOMY OF A CREDIT REPORT Credit cards and home equity lines of credit (also known as HELOCs) are considered revolving lines of credit. These are lines of credit that are available to you as long as you keep the accounts open and the payments due will vary based on the balances you accrue. You charge them up, and then pay them down (ideally as quickly as possible). Thus, these are credit accounts that revolve. Not only will you see all the accounts you currently have open, as well as past accounts that you ve closed, you ll see one of the most influential components of your credit score: the payment history of each account. You ll see small icons under each month of the account that either show OK or how many days it s past due, such as 60 or 30. Typically, two years of payment history will show up. Keep in mind that missed payments, delinquent accounts, charge offs and collections can remain on your account for years. A late payment, for example, remains on your credit report for seven years. Another thing to keep in mind as you review this section is that the name of the financial institution might not look familiar to you but that doesn t mean the account isn t yours. For example, most retailers partner with financial institutions when it comes to issuing credit cards. In other words, a Walmart credit card is issued by Synchrony Bank, which means you might see Synchrony Bank on your credit report instead of Walmart. If you re not sure about one of the lenders on your credit report, review all of the open accounts and make sure none of your open lines of credit is missing. If one is missing, then go into that account and check out the fine print or call them up on the phone to see if that account matches the mystery name you see on your credit report. Make Sure All Those Accounts Are Yours! One of the first things to check on your credit report is that each account listed was in fact opened by you. This is not only important for the accuracy of your report and influences your score, it s also a good way to spot identity theft. After all, if someone has opened an account in your name, your credit report could be the only tip off. After all, you re likely not getting the bills from that fraudulent account, so you d have no idea about those fraudulent charges. Were someone to steal of make a copy of a credit card you regularly use, on the other hand, those fraudulent charges would show up on your credit card bill and you d be able to alert the bank immediately that your card had been stolen. The second thing you re looking for is the accuracy of the payment history. If you ve 6

7 PART 1 ANATOMY OF A CREDIT REPORT never paid late on any of your accounts but some late payments are showing up, then your score is suffering unnecessarily. If this happens, you ll want to contact your creditors to resolve the issue. We ll dive into that a bit later. Credit Inquiries Finally, your credit inquiries will close out your report. Credit inquiries refer to instances in which a company pulls your credit report for review, and they can hang out on your report for up to two years. There are two types of credit pulls: hard and soft. Hard credit pulls generally refer to instances when you ve applied for a loan and the financial institution in question pulls your credit report in order to decide whether to give you the loan and what amount of interest they ll charge you. A soft pull, on the other hand, happens when either financial institutions have pulled your credit because they re researching whether or not they want to send you an unsolicited credit offer (like those credit card offers in the main) or you ve pulled your credit for purely educational purposes (at a website that offers free credit reports or scores, for example). When it comes to listing credit inquiries on your credit reports, however, only those hard credit pulls matter and can count against you. Soft pulls have no negative impact. Nevertheless, the credit inquiries section of the credit report worries many borrowers, as they fear too many inquiries can hurt their scores. While that certainly can be true, there are a couple of things to consider. First, relatively speaking, credit inquiries impact credit scores far less than things like payment history. Second, if you re shopping around for a mortgage or an auto loan and multiple financial institutions pull your credit around the same time, credit scoring models generally understand that these multiple pulls all relate to one financial transaction and your score won t suffer unduly. Now, on the other hand, if you re one of those people that applies for a new credit cards because you re trying to score bonus airline miles (also known as a churner ), or if your credit isn t so hot and you apply for multiple credit cards which you don t qualify for, then yes, those inquiries could hurt your credit. 7

8 PART 2 CREDIT SCORES VS. CREDIT REPORTS How to Shop For Credit Without Hurting Your Credit! The typical person need not worry too much about the number of inquiries they re obtaining. But if you are in the market for new credit and want to compare rates, do so within a small window of time. Experts recommend keeping the rate shopping within a 14- day window, and that you only shop for the same type of loan within that time that will send a clear signal that you re rate shopping and that you don t intend to open up all of the accounts you re applying for. Part 2: Credit Scores vs. Credit Reports This might be one of the most confusing things about credit: the fact that your credit score is not the same as your credit report and that you ll never see your score on your report. huh? One easy way to remember this is to consider what CRAs are: credit reporting agencies. The most commonly used credit scores come from separate companies, with the main two being FICO (which stands for Fair Isaac Corporation, the creator of the credit score) and VantageScore (a newer credit score model developed the big three CRAs, though it is run as an independent company). So that s why your score and report don t show up in the same place. As for the difference between the two, your credit report is simply a detailed list of your past and current credit activity. Credit scores are derived from information on that report. These scores are essentially formulas that weigh the information in your credit report differently. There are literally dozens of credit scoring models and each one has its own unique formula or algorithm. Since we each have more than one credit score, it s helpful that scores come with ranges (typically from Excellent to Poor ). For example, FICO has dozens of credit scores, but their FICO 8 credit score model ranges from and they categorize it as follows: 800 and above: Exceptional : Very Good : Good : Fair 579 and lower: Poor 8

9 PART 2 CREDIT SCORES VS. CREDIT REPORTS You might also wonder why there are so many credit scores. What s the point? This boils down to the purpose of credit scores a way for lenders to evaluate the level of risk in lending to you. Lenders have different criteria and as a result, credit scoring models can differ. Beyond that, credit scoring models improve over time. The scientists who create them come up with ways to make them more predictive and able to score more people (some people don t have enough credit history to generate a credit score). Nevertheless, most credit scores are designed to do the same thing. They aim to answer the following questions: How likely are you to repay your debt based on your payment history for other accounts? Are you currently overextended on your credit obligations? Do you have any experience repaying the type of credit they offer? There s often a threshold in scores that lenders establish for their ideal borrower. If your score is below that threshold, your credit application might be denied or approved at a higher interest rate. If you re at or above the threshold, your application could be approved. For many lenders, the higher your score, the lower your interest rate. Having a low credit score can seem like a punishment, but the reality is that lenders see them as tool to lower their risk. By charging you more interest, they get more money from you upfront, which helps them if you end up not repaying your debt in full. It s certainly frustrating and expensive as a borrower, but paying on time for all of your accounts can help you get a better score and, eventually, better rates. So where does your credit report fall in all of this? Well, lenders might view both your score and your report, as the report fleshes out more of the story the score tells. But for you, the report is a way to ensure that your score is accurate. Again, if your credit report contains errors, your credit score could suffer. That s why building or repairing credit should always begin with a review of your credit report. From there, you can also see what areas need improvement in order to get that score you really want. 9

10 PART 3 WHY YOUR CREDIT MATTERS EVEN IF YOU DON T INTEND TO BORROW MONEY Part 3: Why Your Credit Matters Even If You Don t Intend to Borrow Money If you ve gotten this far and are thinking to yourself, Cool, but it doesn t matter to me because I m good on the credit front, think again. Many more people besides lenders see your credit report. Here are just a few to paint the picture: Potential landlords Your cell phone provider Utility companies Insurance companies Potential employers Some financial experts claim you don t need to worry about your credit (here s looking at you, Dave Ramsey). Unfortunately, that could only work if you led a truly cash-only lifestyle. In the meantime, your credit report can be viewed by various types of companies as a way to ensure that you re a trustworthy consumer. Whether we like it or not and whether we decide to pay attention or not our financial history is being documented or reviewed. You may choose to ignore your credit, but others won t. That s why you should stay on top of your credit report even if you don t intend to borrow anytime soon. At some point you may find your dream home and need a mortgage. Or maybe your car will bite the dust and you suddenly need an auto loan. These aren t the moments to begin monitoring your credit. You may discover an error on your report that s dragging your score down, but you ll have little or no time to correct it. And if that s not enough to convince you, we ll remind you again about identity theft. Reviewing your credit reports each year is a first line of defense in ensuring that you ve not been victimized by an identity thief. And it s also the moment you can take action if you have been. 10

11 PART 4 HOW TO RESOLVE ERRORS ON YOUR CREDIT REPORT Part 4: How to Resolve Errors on Your Credit Report We talked a lot about the fact that you might find errors on your credit report, and how to spot these errors. Now let s talk about what to do about them. Before we get into the steps, here s another reminder of the importance of checking all three of your credit reports: One from each of the three CRAs. That means you ll want to go to AnnualCreditReport.com to view your credit report from Equifax, Experian, and TransUnion. Different companies can choose which CRA they want to report to they re not required to report to all three. That means it s possible (probable, even) that your three reports will contain different information. If you really want to make sure there are no errors on your report, you need to check all three. Okay, now let s talk about what to do about errors if you spot them. What to Do About Errors in Your Personal Information This one is easy. If your name, social security number, address, or other personal information is showing up incorrectly on your report incorrectly, you can resolve the issue with the applicable CRA. You can do this via phone, mail, or internet. Here s how: Equifax Dispute an error with Equifax online here Via mail at: P.O. Box , Atlanta, GA Via telephone at: (866) Experian Dispute an error with Experian online here Via mail at: P.O. Box 4500, Allen, TX Via telephone at: (866) TransUnion Dispute an error with TransUnion online here Via mail (using this form) at: P.O. Box 2000, Chester, PA (You can also fax this form via (610) Via telephone at: (800)

12 PART 4 HOW TO RESOLVE ERRORS ON YOUR CREDIT REPORT If you re comfortable with creating your dispute online, each of the CRAs offer a login and the ability to view the status of your dispute at any time. This could make tracking your dispute easier, although you can still go back and create an account online to track it if you started your dispute over the phone or mail. And remember, if you see an error on your Equifax report but not your Experian or TransUnion report, you only have to dispute the error with Equifax. Or, if you see it on all three, you ll have t open separate disputes for all three. What to Do About Account Reporting Errors So what if you see an error on your report regarding one of your accounts? Although you ll want to open a dispute the same way outlined above, you might also want to reach out to the information provider for that account, such as your creditor. Although you could reach out to the company by phone, putting it in writing can protect you and lay a paper trail. The Federal Trade Commission (FTC) has a sample letter to help. To expedite the dispute process, make sure your letter includes concrete information such as: The name of the CRA showing incorrect data The items being disputed and why A request that the company you re writing to have these errors removed Any proof you have to show that this data is incorrect, such as statements or other records that show what really happened The FTC also recommends that you send this letter via certified mail with a return receipt requested. That way you can be sure it got where it needed to gp and when. Once you do this, keep track of who you talk to and when and stay on top of them to ensure that they re taking steps to resolve the error with the CRA showing it. You should also stay on top of the CRA to ensure that they re taking their steps to fix the issue once they ve gotten any confirmation they need from the information provider. There may be quite a lot of back and forth between you, the CRAs and the financial institutions reporting your data to them. It can take weeks and sometimes much longer to get these issues resolved, but you can do. Just be sure to keep very good notes of all of your interactions with all of the parties involved and keep track of any and all letters or s they may send. 12

13 PART 4 HOW TO RESOLVE ERRORS ON YOUR CREDIT REPORT What to Do About Identity Theft Finally, here s what to do if you ve found accounts on any of your credit reports that were fraudulently opened in your name. The FTC has outlined steps to follow in case of identity theft, which you can see on IdentityTheft.gov. Below are the steps they ve outlined: Ask companies to close accounts fraudulently opened in your name. If the charges happened on your existing accounts, dispute them with your creditor and close the accounts to reissue new, safer account numbers. Use a fraud alert (or even a credit freeze if you wish to) in order to prevent new accounts from being opened in your name. You can place one with each of the CRAs: Equifax, Experian, TransUnion. Create a fraud report with the FTC here. Consider filing a police report. If this sounds like a lot of steps (which it certainly can be) and you just wish you could get some help, there s a chance you re already paying for a service to help you without you even realizing it. That s because some insurance companies offer identity theft resolution services as part of things like auto or homeowners insurance. The thing is, they don t necessarily advertise this feature. If you ve been victimized by identity theft, call up your homeowner s insurance provider and explain what happened, asking if there s some sort of credit resolution service built into your plan. If there is, your life just got that much easier. What s more, there are independent services you can pay for to monitor your credit and help you resolve identity theft issues. However, at a cost of $15 or more per month, it will be up to you to decide if it s worth it to forego the DIY method. One thing is for certain, before you sign up for any paid service, first contact all of the insurance companies you pay a premium to in order to find out if they offer identity theft resolution in your current plan. Insurance companies don t typically provide monitoring, but they do sometimes provide resolution (whereas the credit reporting bureaus and some independent services do both). 13

14 PART 5 HOW TO GET HELP RESOLVING ERRORS ON YOUR CREDIT REPORT Part 5: How to Get Help Resolving Errors on Your Credit Report CRAs have been in some hot water in the past year for not resolving credit report disputes in a timely manner. And, although the CFPB is taking legal action to remedy this, engaging in a dispute might feel like an arduous task. After all, there s no telling how long a dispute can take or how many times you might have to dig for further information or follow up with CRAs and creditors alike to make the fix. As if that weren t frustrating enough, you can only pull your credit report from each CRA for free one time per year. But what if you want to see you report more than once per year? What if you want someone to help you monitor your report, spot errors for you, and hold your hand throughout the dispute process? You can. With Upturn, you can get free access to your VantageScore credit score and your Transunion credit report, you can spot errors as they occur, and you can dispute those errors from a simple and intuitive online platform. Upturn will take care of the rest. We all want to diligently stay on top of our credit reports. It s a nice thought to follow through with a dispute with the same eagle-eye focus that we do in our work each day. But the reality is, life gets in the way. Even the most important to-dos fall by the wayside when work runs long, family needs our time more, and we barely have two seconds to think about what we need at the end of the day. Have questions about how Upturn works? Send us a note at hello@upturncredit.com! 13