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What Is A Credit Bureau?
What is a credit bureau? What does it do?
Essentially, it's a clearinghouse of consumer credit information. In our "buy no, pay later" credit system, when a merchant lets you buy an item on credit, he's really lending you the money buy the item, and he wants some assurance that he'll get his money back when promised, He gets that assurance from your credit record which is complied by the credit bureau. It's a summary of how you've handled similar obligation with other stores and lending institutions in the past.
If each credit grantor had to gather the necessary information on each consumer desiring to purchase goods or services on credit, the cost of granting credit would be prohibitive, and the consumer would experience a great deal of delay an inconvenience.
How does a credit bureau compile information?
Some of it is supplied by you when you apply for credit - such as your name, spouse's name, address and former address, employer and former employer, social security number, and so forth. Some of it is supplied by the merchants and other creditors with whom you've done business. As members of the credit bureau, they regularly supply information on how promptly you've paid your debts to them.
Other information comes from public records - such as divorce notices, deaths, marriages, bankruptcies, court judgements and dispositions of lawsuits.
Does a credit file include comments from neighbors or others on a person's morals or character?
No. That is called an investigative report, and it is information used by insurance companies for underwriting purposes. The information usually is obtained through personal interviews. Credit bureaus do not employ outside investigators and do not furnish that type of report.
Can a person find out what is in his file and where the information came from?
You can go to a credit bureau and ask to review the file on you, and, after proper identification, you'll be told everything that's there and where it came from. If there are errors you can have them corrected, have anything you question reinvestigated and, if an account is in dispute between you and a merchant, you can file your side of the story in the bureau's records. Your statement becomes a permanent part of the record. It's included with everything else whenever a credit report on you containing the disputed information is given out.
Are there any laws that regulate credit bureaus?
The Fair Credit Reporting Act of 1971 was an effort by Congress to regulate the compilation of information on individuals in order to offer legal protection of their privacy while not impeding the credit granting process. In other words, legally a consumer did not have the right, before the law was passed, to know what was in his file. Credit grantors were not as limited in the purposes for which they could gain access to a person's record.
However, the credit reporting industry, under the leadership of its international trade association, Associated Credit Bureaus, Inc., already was policing itself. Most bureaus had been reviewing files with consumers for years without charge. And most had agreements with their grantor customers that reports were to be ordered only for the purposes of granting credit or employment. The Fair Credit Reporting Act gave all this the force of the law. Furthermore, the credit industry was instrumental in helping Congress pass the bill.
What if there is something bad on a record - say, a person couldn't pay some bills because of sickness or a layoff at one point. Is that information going to follow him all his life?
No. The law limits the reporting of adverse information to seven years. The only exception is bankruptcy, which is reported for 10 years. In practice, many firms don't base decisions on information that old; they would rather consider your record over the past three to five years.
How do you know when someone really has a legitimate purpose for requesting a credit report?
First, credit grantors receive reports only by giving the bureau their code number. This code number - assigned just to them - insures that only bona fide members of the credit bureau obtain credit information.
Second, our member have to sign a contract with us that they will order reports only on persons they are considering for credit or employment. If they violate this contract, they're also breaking the law and they may be punished with stiff fines of $5,000 or one year in jail.
Do you, the credit bureau, rate accounts?
No. All we do is keep records. Each creditor rates your account the way you paid him.
How is this done?
Creditors use a standard system for reporting their credit experience with consumers.
In addition to advising the credit bureau whether the type of account is 30-day, Installment or Revolving, they will also indicate the amount of monthly payments.
If the account is paid as agreed, this fact is reported. The creditor will also advise of any history of the consumer being past due during the recent months. Most creditors report only the past 12 to 18 months' experience on 30-day or Revolving accounts, but may review the entire length of the contract on Installment accounts.
Suppose a consumer is turned down for credit. What should he do?
If he was rejected wholly or partly because of information contained in a credit report, the creditor must give him the name and address of the credit bureau involved. Then he can arrange for an interview to review his file. This may be done at the bureau, in person, or by telephone if he first makes a written request. There is no charge if this is done within 60 days of the credit rejection.
A trained interviewer will review the file and disclose the contents to him. The bureau will reinvestigate any errors or disputes without charge.
Sometimes, though, a person may have a record of prompt pay and still be turned down. In such cases, it's usually because the consumer hasn't met other requirements of that firm…such as length of residence at one address or time on the job. Remember, each individual credit grantor sets its own requirements and specifications, not the credit bureau.
Suppose a consumer wants to know what information the credit bureau has about him, even though he hasn't been rejected for credit. Can he still find out?
He ahs the right to review the file at any time. However, there may be a small charge. As a matter of fact, it would be wise for consumers to visit their credit bureaus periodically for a file check just as they visit their doctors and dentists…since our economic health is based on credit. An especially important time to make sure your file is up-to-date and accurate is right before making one of the biggest credit purchases in most people's lives - a home.
Are there any laws pertaining to women and credit reporting?
Yes, as a result of the Equal Credit Opportunity Act, women may now require creditors to show their participation in a family account when information about that account is reported to a credit bureau. Establishing credit accounts in her own name will probably result in a woman creating a separate file at the credit bureau, but normally family records are stored and accessed with the husband's name. If a woman wants a separate file, she should make the request at the credit bureau.
How does a person with no credit history establish a credit record?
The best way to establish credit is to start small and slowly, perhaps with a local retailer or by making a large down payment and paying the balance on credit. Many local department stores have special budget accounts - with set limits - for those with no credit history or with limited means. Once you've proven yourself with these merchants, you'll have started a record. And others will then be more likely to open accounts for you.
Everyone should have at least a few credit accounts. Otherwise, if you pay cash for everything, you won't have established a record of good paying habits. And, should you ever really need credit to buy a house or need a loan to pay hospital bills, you might have trouble getting it simply because you have no credit history.
Once a consumer gets credit, how can he avoid getting too deeply in debt?
The answer is simple - he must learn to manage his money - to keep his spending in line with what he makes.
Are there certain guidelines?
Most important, you need to know exactly how much your take home pay is each month - to the penny. Then, restrict your credit payments to 20 percent of your monthly salary after subtracting your rent or mortgage and car payments. For example, if you bring home $850 a month, your rent is $220, and your car payment is $175, that leaves $455 for additional expenses. Your payments for credit purchases should not be more than 20 percent of $455 - or $91.
Also, you should learn to shop for credit the way you shop for other things. Look for the best bargains. Credit usually is not free, and some plans cost more than others.
Finally, don't let a salesman tell you what you can or can't afford. You know your income and obligations; he doesn't.
Of course, in addition to buying wisely, people should plan for emergencies by saving money regularly and by having adequate insurance coverage.
What about people who already have gotten themselves into trouble credit-wise? What should they do?
Any time you can't pay a bill on time, it is best to contact the creditor immediately and explain the situation. Creditors usually are understanding and willing to help you through a cash-short period. And they appreciate knowing that you still are aware of your obligations and are willing to pay, even though circumstances won't allow you to meet the payment schedule you originally agreed upon.
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