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Solving Credit
Problems
If you are having problems getting credit or
paying your monthly bills, you may be tempted
to turn to businesses that advertise quick and
easy solutions to credit problems. But do not
be misled. There are no instant solutions. Although some credit
counseling businesses "guarantee results or your money back,"
you may find that there are hidden strings attached or that
the company is gone when you want your money back.
There are steps you can take to help solve your
credit problems. However, solving them takes
time, patience, and some understanding of the
law. This brochure may help you. It explains
why your credit history is important, how to build a credit
history and establish credit, and what can be done to improve a bad
credit history. It also suggests ways to help deal with debts you may
have, possibly by using a nonprofit Consumer
Credit Counseling Service.
Why Your Credit History is Important
Although creditors usually consider a number of
factors in deciding whether to grant credit,
most creditors rely heavily on your credit
history. To learn how you have handled credit in the
past, most creditors obtain a report from your local credit bureau.
Credit bureaus gather and sell credit information about consumers
and are a principal source of information about your credit
history. Your credit bureau report is based on information
supplied over time by your creditors. It also provides
information on where you live and work and may note other
matters of public record such as judgments or bankruptcies.
Your report records payments you have made on credit
cards, installment loans, and other credit accounts and helps
creditors predict whether you are likely to be a good credit
risk. A history of timely credit payments helps you get additional
credit.
Some creditors are reluctant to grant credit to
consumers-who have not established a "track
record" with other creditors first. In
addition, many creditors will not extend credit
to consumers with a history of delinquent payments, repossession,
judgments, or bankruptcy. If you are in either situation,
be wary of ads that promise you "instant credit" or "a
major credit card regardless of your lack of credit history or your past
credit record." The fact is that all legitimate creditors
want to know whether you are likely to be a good credit
risk. Whether you get credit will depend on whether your qualifications
meet the creditor's criteria. No one can guarantee
you credit in advance.
How to Build A Credit History and Establish Credit
Building a good credit history is important. If
you have no reported credit history, it may
take time to establish your first credit
account. This problem affects young people just beginning
careers as well as older people who have never used credit.
It also affects divorced or widowed women who shared credit
accounts that were reported only in the husband's name.
If you do not know what is in your credit file,
check with your local credit bureaus. Most
cities have two or three credit bureaus, which
are listed under "Credit" or "Credit Reporting Agencies"
in the Yellow Pages. For a small fee, they will tell you
what information is in your file and may give you a copy of your
credit report.
If you have had credit before under a different
name or in a different location and it is not
reported in your file, ask the credit bureau
to include it. If you shared accounts with a former
spouse, ask the credit bureau to list these accounts under
your name as well. Although credit bureaus are not required
to add new accounts to your file, many will do so for a small fee.
Finally, if you presently share in the use of a credit
account with your spouse, ask the creditor to report it under both
names.
Creditors are not required to report any account
history information to credit bureaus. If a creditor does report on an
account, however, and if both spouses are permitted
to use the account or are contractually liable
for its repayment, under the Equal Credit Opportunity Act you can
require the creditor to report the information
under both names. When contacting your
creditor or credit bureau, do so in writing and include relevant
information, such as account numbers, to help speed the process. As with
all important business communications, keep a copy of what you send.
If you do not have a credit history, you should
begin to build one. If you have a steady income and have lived in the
same area for at least a year, try applying for
credit with a local business, such as a
department store. Or you might borrow a small
amount from your credit union or the bank where you have checking and
savings accounts. A local bank or department store may approve your
credit application even if you do not meet the standards of larger
creditors. Before you apply for credit, ask whether the creditor reports
credit history information to credit bureaus serving your area. Most
creditors do, but some do not. If possible,
you should try to get credit that will be reported. This builds your
credit history.
If you are rejected for credit, find out why.
There may be reasons other than lack of credit history. Your income may
not meet the creditor's minimum requirement or
you may not have worked at your current job long enough. Time may
resolve such problems. You could wait for a salary increase and then
reapply, or simply apply to a different creditor. However, it is best to
wait at least 6 months before making each new application.
Credit bureaus record each inquiry about you. Some creditors may deny
your application if they think you are trying to open too many new
accounts too quickly.
If you still cannot get credit, you may wish to
ask a person with an established credit
history to act as your co-signer. Because a co-signer promises to pay if
you don't, this can substantially improve your
chances of getting credit.
Once you have repaid the debt, try again to get
credit on your own.
What Can Be Done to Improve a Bad Credit Report
You are entitled by law to correct any inaccurate
information that appears in your credit bureau file. If a creditor
rejects your application because of negative information
in your credit bureau report, it must identify the credit
bureau involved. At your request, the credit bureau must disclose
the contents of your credit file. If you act within 30 days of being
turned down, there is no charge for this service.
Check to see whether the information in your
credit report is accurate and complete. You
have the fight, under the Fair Credit Reporting Act, to dispute the
completeness or accuracy of any information in your report. When you do
so, it helps to tell the credit bureau, in writing, why you think the
information is not correct. Unless your dispute is frivolous or irrelevant,
the credit bureau then must reinvestigate the matter. The credit bureau
must correct any information that it finds is
not reported accurately. Information that cannot be verified
must be deleted. If you disagree with the results of the
credit bureau's reinvestigation, you may file a brief dispute statement
explaining your side of the story. At your request, the credit bureau
will note your dispute in future credit bureau
reports.
Be aware that when negative information in your
report is accurate, only the passage of time
can assure its removal.
Credit bureaus are permitted by law to report
bankruptcies for 10 years and other negative information for 7 years.
There is nothing that you (or anyone else) can do to require a credit
bureau to remove accurate information from your
credit file until the reporting period has expired. Don't be misled by
ads aimed at people with bad credit histories, judgments, or
bankruptcies. Promises to "repair" or "clean up" a
bad credit history can almost never be kept.
How to Deal with Your Debts
A sudden illness or the loss of your job may make
it impossible for you to pay your bills on
time. Whatever your situation, if you find that you cannot make your
payments, contact your creditors at once. Try to work out a modified
payment plan with your creditors that reduces your payments to a more
manageable level. If you have paid promptly in the past, they
may be willing to work with you. Do not wait until your account is
turned over to a debt collector. At that point, the creditor
has given up on you.
Automobile loans present special problems. Most
automobile financing agreements permit your creditor to repossess your
car any time that you arc in default on your
payments. No advance notice is required. If your car is repossessed you
may have to pay the full balance due on the loan, as well as towing and
storage costs, to get it back. Do not wait until you are in default
Try to solve the problem with your creditor when you realize you will
not be able to meet your payments. It may be better to sell the car
yourself and pay off your debt than to incur
the added costs of repossession.
How to Evaluate Credit Repair Companies
If you are having trouble paying your bills, you
may be tempted to turn to a company that
claims to offer assistance in solving debt
problems. Such businesses may offer debt consolidation
loans, debt counseling, or debt reorganization plans that are
"guaranteed" to stop creditors' collection efforts.
Before signing up with such a business, investigate it thoroughly. Be
sure you understand what services the business provides and what they
will cost you. Do not rely on oral promises that do not appear in your
contract. Also, check with the Better Business
Bureau and your local consumer protection office. They may be able to
tell you whether other consumers have registered complains about the
business.
Consumers who turn to such businesses for help
sometimes encounter additional problems. For example, debt consolidation
or other large short-term loans may have high hidden
costs and may require your home as collateral.
An unscrupulous company may misrepresent the
terms of such loan agreements; if so, you could
end up losing your home.
Businesses offering debt counseling or
reorganization may charge substantial fees or a percentage of your
debts, but fail to follow through on the
services they sell. Some may do little more
than refer indebted consumers to a bankruptcy lawyer, who charges
an additional fee. Businesses advertising voluntary debt
reorganization plans or "Chapter 13" relief may fail to
explain that Chapter 13 debt adjustment actually is a
form of bankruptcy. To qualify for it, you must have a source of regular
income and a plan for repaying your creditors that meets the approval of
the bankruptcy court. Businesses that sell bankruptcy-related services
may not tell you all that is involved or assist you through what can be
a complex and lengthy legal process. Debt problems can be distressing,
but be careful when selecting a solution. Some "solutions" may
only add to your problems.
Where to Find Low-Cost Help
If you need help in dealing with your debts, you
may want to contact a Consumer Credit Counseling Service (CCCS). This is
a non-profit organization with more than 850 offices located in 50
states. CCCS counselors will try to arrange a repayment plan that
is acceptable to you and your creditors. They will also help
you set up a realistic budget and plan future expenses. These services
are offered at little or no charge to you. You can find the CCCS office
nearest you by checking the White Pages of your telephone directory or
by calling from a touch-tone phone
1-800-388-2227 to get the telephone number.
However, if you have other questions,
contact:
National Foundation for Consumer Credit, Inc.
8611 Second Avenue, Suite 100
Silver Spring, Maryland 20910
(301) 589-5600
In addition, non-profit counseling programs are
sometimes operated by universities, military
bases, credit unions, and housing authorities.
They are likely to charge little or nothing
for their assistance. Or, you can check with your local bank or consumer
protection office to see if it has a listing of reputable, low-cost
financial counseling services.
Where to Find More Information
The Federal Trade Commission enforces a number of
federal laws involving consumer credit,
including the Equal Credit Opportunity Act,
the Fair Credit Reporting Act, the Truth in Lending
Act, the Fair Credit Billing Act, and the Fair Debt Collection
Practices Act. It also provides free brochures explaining
these laws. For these or related publications, such as
Building a Better Credit Record, Women and Credit Histories, and
Credit Billing Blues, write to: Public Reference, Federal Trade
Commission, Washington, D.C. 20580.
Although the Commission cannot solve individual
problems for consumers, it can act when it sees a pattern of possible
law violations develop. If you have a complaint that may involve a
violation of consumer protection law, write to:
Correspondence B ranch, Federal Trade Commission,
Washington, D.C. 20580.
* Your credit report records your payments on
credit cards, installing loans, and other
credit accounts. It helps creditors predict
whether you are likely to be a good credit
risk.
* Be wary of ads that promise you "instant
credit" or "a major credit card
regardless of your lack of credit history or
past credit record."
* If you are rejected for credit, find out why.
You can get a free copy of your report if you
request it from the credit bureau that provided it, within 30 days of
being turned down.
* Check to see whether the information in your
credit report is accurate and complete. You are entitled by law to
correct inaccurate information that appears in your credit bureau file.
Bureau of Consumer Protection
Office of Consumer & Business Education
(202) 326-3650 |
