Want to buy a house? Get a better credit card rate? Score a decent car loan? When it comes to telling your financial story, your credit report -- and the credit score determined by it -- always seems to have the last word. But you can write 100 of those words yourself.
to a provision of the Fair Credit Reporting Act, when something's amiss with
your credit report, you have the right to add a statement to your file about it, either to dispute a mistake or to explain your personal financial debacle. The Big Three credit bureaus limit you to 100 words a pop, but
both Experian and TransUnion allow you to add multiple statements to your
report; Equifax draws the line at one statement on your credit report at a
Do they work? Yes, if ...
Regardless of how much you're allowed to write, a larger
question remains: Do the 100-word letters actually work to a consumer's
advantage? Theoretically, statements give you more of a voice in your own
financial future. Used unwisely, they can do more harm than good.
"It's a good idea to add a statement when you disagree
with the results of a dispute," says Rod Griffin, director of public
education for Experian. "A statement of dispute allows you to tell your
side of the story." Similarly, if medical issues led to late payments, a
statement can point out the reason behind the misstep and reassure lenders that
you've since regained financial control.
What you don't want to indulge in, says Griffin, are
"the things we refer to as 'statements of excuse,' tongue in cheek." Adding,
"I went on vacation to Bermuda and forgot to mail the check" to your
credit report just confirms that your payment actually was late, for a pretty ridiculous reason. "That won't be
helpful," Griffin insists.
Know when to speak up
As a credit counselor and director
of media relations for Seattle-based ClearPoint Credit Counseling Services,
Bruce McClary knew all the right moves to make when he noticed a fraudulent cellphone account on his credit report, the result of identity theft. He immediately contacted the cellphone company's fraud department, filed an affidavit with local authorities and sent copies of the documentation to the three major credit reporting agencies.
Despite his precautions, McClary knew that on his credit report, the situation could raise curiosity, maybe even red flags. "There was a fraud alert on my report, but I knew that if anyone pulled my credit report, they might be hungry for a little more detail as to what was going on and why it was happening," he says. McClary whipped up a personal statement to explain the situation and the ongoing investigation. Even after the credit reporting agencies all removed the charges, McClary left the statement on his report, "just in case."
Weigh the risks
In the case of identity theft or another unresolvable credit
crisis, a consumer statement along the lines of, "I'm currently disputing
this charge," allows you to underline that you at least tried to correct
the mess-up. But according to Brette Sember, author of "The Complete
Credit Repair Kit," "most financial advisers now say not to ever add
a consumer statement, since it is an admission there was a problem that was
When your statement says something such as, "I was late on
this account because ... ," you're validating that the negative information
in the report is accurate. Disputing an error may falsely indicate that
everything else on your report is totally accurate. Also, while a statement
about your medical history or the divorce that knocked you financially off
kilter may explain your terrible credit score, it could also underscore that
you're a bad risk.
Prepare to be ignored
It's not even clear how often, in an age of automated
underwriting, consumer statements are actually read. "Your credit report
is evaluated by computers," says Sember. "When you apply for a loan,
there's not a guy sitting down reading your report and looking for a statement,
saying, 'Oh, OK, she was sick and that explains it.' That's not happening
Even if someone does happen to glance at your consumer
statement, it rarely has the desired effect, lenders admit. Timothy Palla of
McDermott, Ohio, who spent 15 years working for consumer banks and in the
finance office of a large car dealership, says, "Customer's comments on credit
reports were far and few between, but to tell you the truth, I can't recall one
single time when it made any difference in considering an application for
Another option: Explain in person
Not all lenders will read the statement you slaved over -- but if you're eager to explain why your credit score is so low there is one more option: Grab the loan officer and say it yourself.
"Lenders -- at least seasoned ones -- can look into a person's eyes and listen with their mind and heart and discern whether or not the applicant is lying or telling the truth," says longtime Ohio lender Timothy Palla. "Often, the consumer's passion and determination have more weight than the problems on a credit report."
The danger, of course, is coming off like a psycho. Palla offers these tips for keeping the conversation polite and effective:
Practice what you'll say, and get it down to three minutes or fewer. "The officer doesn't have all day, and they are not interested in hearing about the cat that got hit by a car," says Palla.
Show you've made a good-faith effort to resolve problems and dispute errors.
Come armed with documentation in case the loan officer asks to see it.
Don't take "no" personally. Take it as a challenge to clean up your credit so that next time, they'll have to say "yes."
When it works
So what's the point of adding a consumer statement? For starters, you may simply feel better after having had your say. "It gives people a feeling of power," says Sember. "You feel like, 'At least I put my side of the story down.'" For someone frustrated by the effects of a negative financial history, that's no small comfort.
Also, although many lenders rely on computers to determine your creditworthiness, some still do things the old-fashioned way. "With every lender I worked for, we were encouraged to look beyond the credit score," says McClary.
Even as new models for determining credit scores give
consumers the benefit of the doubt when it comes to things like limited credit
history or paid collection accounts, "responsible lenders are still wise
to look beyond the score when serving their customers since there are still
issues that might require additional documentation or explanation."
Some experts even think that the ongoing credit crunch may mark a return to more manual underwriting. "Given the current economic environment, the shift to automated approvals may be reversing itself," says Steven Katz, a spokesman for TransUnion. "Banks are clearly scrutinizing every aspect of candidates' qualifications for a loan, so your paperwork may be more important than ever before."
At the very least, a consumer statement can make you look proactive about your credit situation in a way that appeals to potential lenders. It can even scare off debt collectors. "Filing a statement shows that the consumer is educated about their rights, and that's what debt collectors try to avoid," says Jonathan G. Stein, a consumer law attorney in Elk Grove, Calif. "Debt collectors
know that a consumer who is educated is going to fight them and make them prove
everything; they can't collect money as easily from people asserting their
Plus, Stein points out, "A consumer statement will also
let prospective lenders know that you take your credit score seriously and want
to do the right thing. That is never bad for being able to borrow money."
If an undeserved ding on your credit affects your credit score or your borrowing ability, explaining what happened may serve you well. When in doubt, however, you may find that you say it best when you say nothing at all.