The truth about credit reporting

Where consumer credit reports are concerned, the major credit bureaus, Equifax, TransUnion and Experian, always seem to prioritize profits over precision.  Sadly, every major consumer study to date has revealed their breathtaking disregard for ensuring accuracy.  Unfortunately, those credit bureaus determine the quality of our lives in so many fundamental ways.  Even a single credit report line item can significantly influence everything from how much we'll pay for our homes and cars to how insurance companies gauge our risk to whether we'll be hired for certain jobs.  So it's no wonder that consumers are fighting back.  In fact, many are beginning to demand that their credit reports accurately reflect their true fiscal history and intentions. 

Compare Credit Cards for Bad CreditIt's important to remember that the credit bureaus aren't government-sanctioned entities. Such so-called bureaus are really just privately-owned companies whose business is to buy and sell gossip about you and your neighbors. 

In fact, no federal statute mandates credit reporting at all.  So despite what Sears or some other credit card issuer says about negatives having to remain on credit reports for seven years, it's simply not true.  The governing statute in that regard, the Fair Credit Reporting Act, states simply that most derogatory marks can remain no longer than seven years, but it doesn't sanction any minimum reporting period.  In that regard, everything that appears in a credit report is optional.  Unlike some credit card issuers, the government doesn't care how long something remains on a credit report, so long as items don't remain longer than the legal limit - which is usually a maximum of seven years except for bankruptcy-related items which can remain for no longer than ten years. 

It's that misconception, what I've termed the Myth of Mandatory Credit Reporting, that keeps consumers subjugated to the whims of sloppy credit reporting and, unfortunately, often with terrible consequences. 

Fortunately, our federal laws are designed to protect consumers rather than creditors or credit bureaus.  So, for example, as I mentioned before, the FCRA places limits upon what credit bureaus can report and for how long.  Other protective statutes like the Fair Credit Billing Act and the Truth in Lending Act restrict banks and other creditors with regard to how they can and can't interact with their customers.  And perhaps most importantly, the Fair Debt Collection Practices Act keeps abusive debt collectors in check. 

The good news is that every one of these statutes can be leveraged in order to ensure that a consumer has the best credit report possible.  Remember that any company placing a mark on a credit report must comply with a phalanx of consumer protection regulations, all of which are designed to protect the average citizen.  If all requirements aren't met, and if the legal imperative mandating accuracy isn't upheld, then the credit report must be revised.  Even credit checks can negatively impact a consumer's credit rating.  Fortunately, the governing federal statute stipulates that third parties must establish clear 'permissible purpose' before viewing a consumer's credit report, and that requirement can be enforced as well.  Good consumer law firms, like Lexington Law, can assist consumers with seeing such processes through to their logical, and usually favorable, ends.  Significant credit score gains can be attained in a fairly short period of time. 

Until recently, an accurate credit report's worst enemies were of course the sloppy credit bureaus and those careless creditors who report to them.  The sudden ascendance of the Internet during the end of the last century gave rise to something perhaps even more insidious, and that of course is identity theft, a circumstance whose negative consequences can be severe.  Too often the major credit bureaus simply don't believe victims of identity theft, and consumer law firms can prove quite helpful in that circumstance.

Dr. Randy Padawer is a clinical psychologist, consumer advocate and credit consultant for Lexington Law. His research interests include consumer credit.

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Updated: 01-23-2019