Just how the bureaus work and who they work for are often misunderstood
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For better or worse, credit bureaus play a critical role in our financial lives. The bureaus keep track of our credit and debt history and then sell that information to banks and other organizations. This information can affect our mortgage or car loan interest rates, whether we get an apartment or cell phone, or sometimes even whether we get a job.
Myth No. 1: The credit bureaus work for you. Barry Paperno, a CreditCards.com columnist who formerly worked with FICO and Experian, says, “People get confused and think we are customers of the credit bureaus. Other than the credit report you buy online, the bureaus make their money by selling credit report information to lenders, collection agencies, banks and so forth. That’s how they make their money, and that’s who they serve.” It may seem cynical to point out that credit bureaus do not work for us, the people they report on, but it’s best to know where you stand – as a product sold to lenders to help them make better business decisions..
Debts only show up on your credit reports if the lender reports to the credit bureaus. Some lenders only report to one or two of the major three credit bureaus. Some debts might not get reported at all.
|\u2014 Priyanka Prakash|
Finance specialist, Fit Small Business
This also helps explain why customer service at credit bureaus isn’t the best. Paperno says. “The only reason they even serve consumers at all is the Fair Credit Reporting Act. It costs them money to handle a dispute. They’re only going to do the minimum.” The FCRA is a federal law that was passed to protect consumers and help promote fairness and accuracy in the credit reporting process.
Troy Dennis, head of credit card product management at TD Bank, confirms this, saying, “The credit bureau is not an agency that is fighting on your behalf.” When you dispute something, they do have a process and a legal duty to find out if the information is true. However, they may not go as far for you as you might expect.
Myth No. 2: Your credit report shows all the debts you owe. While most of your debts do show up on your credit reports, such as your mortgage, car payments, credit cards and student loans, not all debts and bills are reported. “Debts only show up on your credit reports if the lender reports to the credit bureaus. Some lenders only report to one or two of the major three credit bureaus. Some debts might not get reported at all,” says Priyanka Prakash, finance specialist at Fit Small Business.
Some of the more common items that don’t generally show up on your credit reports are medical bills, rent, child support payments, utilities and phone bills and small business debts. If you fall behind on any of these bills, however, they are more likely to be reported to the bureaus once they are turned over to a collection agency for repayment.
Myth No. 3: The credit bureau has the final say on whether you owe money or not. “That’s definitely a myth,” says New York attorney Kevin Mallon of Mallon Consumer Law Group. “On a practical level, the credit bureaus do have the final say on what can stay on your credit report. However, if you have a dispute with a lender, it’s only the courts that can make the final determination on whether you owe money or not,” says Mallon.
You may be able to win a battle over whether a debt truly belongs on your credit report, but find that you still owe money to a creditor. Prakash says, “Even if a dispute is resolved in your favor, creditors can sue you if they think you owe them money.”
Myth No. 4: When a negative mark drops off my credit report, it is no longer collectible. People often confuse the statute of limitations with the rules for how long something can stay on your credit reports. “One has nothing to do with the other,” says Paperno. “If you live in a state that has a 10-year statute of limitations on credit card debt, the debt very well could have come off the credit report after seven years. However, you could still be sued for it.” The Fair Credit Reporting Act regulates how long negative marks can stay on your report, and their rules apply in every state. Under the FCRA, late payments and most other negative marks can stay on your report for up to seven years. Bankruptcies may stay on your report for up to 10 years. The statute of limitations laws, which limit the amount of time a collector can sue you for an unpaid debt, vary by state.
Paperno also warns, “Creditors can use information long after the bureaus have stopped reporting it. For example, if you had a charge-off 20 years ago with a particular bank, they can deny you credit today because of that debt.” For example, if you defaulted on a credit card with a particular bank, and the debt has passed the statute of limitations in your state and has fallen off your credit reports, that doesn’t prevent the bank from accessing its own customer records.
Myth No. 5: You must give permission before anyone can view your credit report. It’s true that your neighbor, a potential employer or landlord, your boyfriend or even your spouse, cannot get a copy of your credit report without your permission.
However, many financial organizations, collection agencies and so on do get information about you without your permission or even your knowledge. Paperno says, “They [the credit bureaus] will sell any of your personal information, not just to a bank, but to collection agencies who are trying to locate you, which is called skip tracing. They will sell addresses, Social Security numbers, dates of birth, any personal information.”
The only reason they even serve consumers at all is the Fair Credit Reporting Act. It costs them money to handle a dispute. They’re only going to do the minimum.
|\u2014 Barry Paperno|
Former consumer operations manager, Experian
Placing a credit freeze with the credit bureaus may stop identity thieves, but it doesn’t stop all organizations from seeing your credit report. For example, the companies you do business with access your report for some purposes.
Myth No. 6: Credit bureaus are government agencies. Credit bureaus are for-profit businesses that sell information. They are not run by the U.S. government, although they must abide by the federal Fair Credit Reporting Act and other laws.
Myth No. 7: Credit reports are grossly inaccurate. “In the bureaus’ defense, the information they provide is generally accurate. Over 90 percent of the information in a credit report is accurate,” says Paperno. The inaccurate information receives a lot of attention, but you have to remember there is a lot of information in a credit report. Detractors, however, make a good point that even if 10 percent of the information contained in an individual’s credit report is inaccurate, that’s too much, given how important a role good credit plays in our society.
Usually, errors are easily fixed, but you have to make reviewing your credit reports a regular habit in order to catch them and correct them. You can pull your credit reports from the big three credit bureaus for free, once a year, from AnnualCreditReport.com.
Myth 8: All credit bureaus report the same information. The information each credit bureau reports depends on its relationship with the companies reporting to them. If you do business with a company that reports only to Equifax, for example, TransUnion wouldn’t have records about your credit history with that company.
“Most credit card companies report to all three credit bureaus, but most department stores may not report to all three,” says TD Bank’s Dennis. That’s the main reason you may have a slightly different credit history and score from each credit bureau.
Myth No. 9: There are only three credit reporting bureaus. Think Equifax, Experian and TransUnion are all you have to worry about? Not so. “There are dozens, probably hundreds, of credit reporting bureaus. The smaller ones are mostly niche reporting,” says Mallon.
For example, landlords have their own reporting agencies that help them sort out which potential tenants are most likely to pay the rent – and which ones habitually trash the unit and quit paying. And insurance companies use information from your credit report to build an “insurance score” – a score that helps predict how likely you are to have a future accident or insurance claim.
Myth No. 10: Credit bureaus are evil. “One of the biggest myths about the Big Three credit bureaus (TransUnion, Experian, and Equifax), is that they’re all-knowing and all-powerful practitioners of the Dark Arts. In fact, the federal government has passed laws that force those credit bureaus to help the little guy. For example, the Fair Credit Reporting Act requires those bureaus to make sure every fact they record about you is accurate. If you see items on your credit report that don’t look right, you have the legal right to challenge those items,” says author and consumer advocate Howard Dvorkin.
Credit bureaus have a role to play in helping us prove we are good credit risks to potential lenders. Paperno points out, “Say what you want about credit bureaus and credit scores, but they are maintained objectively. Whether the information is considered to be negative or positive has nothing to do with identifying information, such as where you live. The bureaus don’t keep race information, for example. Because the credit bureaus have developed in the way they have, credit has been granted in a much fairer way than it was in the past.”
The days when bankers lent you money or didn’t based on how you dressed, whether they liked the look in your eye or any other whim are basically over. Paperno says, “Credit used to be granted in any way they wanted. Working in retail credit many years ago, I remember when it used to be entirely subjective. You didn’t have to give any reason, you could just look at it and say, \u2018No, I don’t think so,’ and put it in the reject pile. Now it’s not based on race, religion or ethnicity. There are more opportunities credit-wise for younger people, for minorities, people who in the past may have been in the fringes before. It’s strictly whether you’ve paid your bills on time that determines whether you get credit.”