Sometimes too much information can come back to haunt you
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If you know your credit isn’t the greatest, it’s natural to want to explain the reason for your financial missteps, particularly if you believe that extenuating circumstances were to blame. While a provision of the Fair Credit Reporting Act allows you to do so, some experts say such an action can hurt more than it helps.If, after you file a dispute against certain claims on your credit report and aren’t satisfied with the outcome, the law allows you to append a statement describing the circumstances that led to your financial problems. The credit bureau can limit that personal statement to 100 words. For example, if you and your insurance company are haggling over medical charges that appear on your credit report as unpaid, or indicate that a bill hasn’t been paid because it is a fraudulent charge, and you have disputed those charges, you are free to draft up an explanation.
While those who take the time to write such a statement may hope that lenders will keep these explanations in mind when making credit decisions, experts say this may be wishful thinking. “This sort of harkens back to an old era, where the local banker hears your personal story and is so moved by it that he or she decides, \u2018Oh, we’re going to make an exception to our normal credit criteria,’” says Lynnette Khalfani-Cox, author of “Zero Debt: The Ultimate Guide to Financial Freedom.” “Honestly, it really doesn’t work that way anymore.”
In fact, in some cases, writing a personal statement can do the opposite, and cause you some damage instead. Here’s why you should think twice before drafting one.
1. You may be wasting your time. While not necessarily harmful, writing a 100-word statement may also be an exercise in futility, since so many credit decisions are made using a automated credit scoring systems rather than a person sitting in a back office sifting through credit reports. Indeed, if a lender uses an automated application system to check someone’s Experian credit report, “The lender will receive a notice that a statement is on file so that they can review it manually,” says Experian spokeswoman Kristine Snyder. However, there’s no guarantee that the lender would follow through and take that extra step.
2. It can prevent you from disputing a debt. Debt collectors must prove that a financial obligation is yours by providing certain information such as the name of the original creditor and the amount owed. However, “Sometimes they may be unable to do so,” says Brette Sember, author of “The Complete Credit Repair Kit.” If a debt can’t be proven, then a debt collector can’t win a judgment against you. But if you provide a reason in that personal statement for not paying your debts, you’re admitting you’re at fault, Sember says.
Once you start explaining, justifying and revealing, it can sound like you’re either not taking responsibility for what went wrong, or you were a poor money manager …
|\u2014 Lynnette Khalfani-Cox|
Austhor, personal finance expert
3. It may be harder to contest future inaccuracies. You may have racked up a few late payments and incurred some large debts while, say, going through a divorce, and submitted a personal statement to explain the hit to your financial affairs. However, what if you later discovered that some of the balances owed on your credit report were incorrect or that you had already paid one of those bills? Pointing out a blunder may be more challenging if you’ve already written a statement taking the blame for what’s on the credit report. “You can no longer contest those parts of your report as inaccurate once you admit you were at fault,” Sember says.
4. It could cost you your next promotion. Many employers pull the credit reports of potential employees, particularly when hiring for jobs that come with financial responsibility. An employer could read a 100-word statement and conclude that you aren’t dependable. “Once you start explaining, justifying and revealing, it can sound like you’re either not taking responsibility for what went wrong, or you were a poor money manager because even if horrendous circumstances befell you, some might be thinking, \u2018How come you didn’t have a plan B?’” Khalfani-Cox says. If the statement isn’t carefully edited and has spelling or grammar mistakes, it can also leave employers wondering if you’re the right person for the job, points out Joanne Kerstetter, spokeswoman for credit counseling agency Money Management International.
5. It could cost you a place to live. If you’re looking to rent an apartment, a potential landlord may pull your credit report to see if you pay your debts. However, if you use the personal statement to bash your ex or describe all of the calamities that have befallen you, the landlord could wonder if renting to you might be more trouble than it’s worth.
6. The statement may outlast the problem. Don’t forget to remove the statement once it has served its purpose. Negative items typically fall off of your credit report after seven years. If you leave the statement beyond that time, it becomes the only evidence of a past problem. “Now you have this statement on your credit report explaining all this negative activity that no longer appears,” Khalfani-Cox says. It could then raise a red flag unnecessarily, leaving lenders to second-guess your financial habits. Kerstetter suggests that consumers request that statements be removed immediately after the issue on the credit report has been resolved and follow up to make sure it is done.
If you’re worried about how items on your credit report will be perceived by a lender or employer, a better option might be to explain the circumstances that led to your situation in person, Khalfani-Cox suggests. “You don’t have to put it out there for the whole world to see – especially if you just need one particular loan approval.”
See related:Explain medical debt with 100-word statement