Credit Law is on the Side of the Borrower
Whose Side is the Law On?
Many people assume that credit bureaus are government-supported organizations that are backed by a whole lot of laws designed to protect creditors. Well, it may surprise you to learn that this assumption couldn’t be further from the truth.
Apart from the government simply recognizing the need for credit reporting, credit bureaus have absolutely nothing to do with the government. Instead, credit bureaus are just huge bureaucratic business companies that exist to make a profit by selling information about you. And you may be surprised to learn that they don’t bother to verify the information they sell about you. They just report what creditors tell them about you. And actually, what the creditors tell them about you is usually just an automatic report generated each month by machine.
Because of the huge potential for errors in credit reporting, the United States Congress enacted laws to protect consumers from being victimized by problems that occur with the credit reporting system. You not only have a right to make use of these laws, it is your responsibility to make use of them. The protection afforded by these laws does not occur by itself. You must initiate action under the terms of the law to benefit from it.
The Reality that Prompted the Law
As the credit bureaus computerized their processes and greatly expanded their reach in the late 1960s and early 1970s, consumer complaints began to grow rapidly at the FTC and state attorney general offices. At that time, the new, combined power of computers and telecommunications provided an unprecedented ability to collect and centralize information about everyone from creditors everywhere. Credit reporting agencies quickly became huge information bureaucracies second in size to only federal government. At the same time, the existence and use of credit cards grew dramatically.
Credit bureaus expressly served only the needs of their clients, the companies that granted credit through loans and credit cards, etc. Lenders need this credit information to determine the risk of lending to a specific borrower. Such information, formulated into a specific score, is used not only to grant or deny credit, but to for the creditor to adjust the interest rate higher or lower for each borrower according to the degree of risk associated with him or her.
Naturally, in a system that was new and developing and that had to handle a huge amount of information every month, there were a lot of errors and few built-in safety mechanisms to respond to problems that had not been anticipated nor experienced yet. As it turned out, many consumers were negatively affected by the credit bureaus, but they had no way to correct or change their credit information. The American consumer lay completely at the mercy of the credit bureaus and a system over which they had no control or influence.
In response, the United States Congress enacted the Fair Credit Reporting Act (FCRA) in 1971 to insure that the credit bureaus actually investigate the credit items that consumers dispute. This federal law set guidelines for a process that gave a consumer the right to challenge the accuracy, validity, and verifiability of the credit listings appearing in their consumer credit report. It also required that the credit bureau delete any credit report item if it was inaccurate. But it went further. Similar to the principle that you are innocent until proven guilty, the law required that the credit bureau delete any item that could not be verified.
So, the Federal Credit Reporting Act changed the equation so that the credit bureaus have responsibility to the consumer as well as the credit grantor. However, in reality, the credit bureaus historically resisted, resented, and rejected consumer disputes. The credit bureaus preferred to be left alone to just collect and sell largely automated information to make a profit. After all, each time a consumer challenged his credit, the credit bureau had to do a lot of non-automated work, undertake a lot of steps, increase its costs and diminish its profits.
The credit bureaus first defended their profits by erecting walls of stall tactics, including requests for more information, further clarification, and additional identification from the consumer. The vast majority of consumers gave up before they even received copies of their credit reports, which they had to pay for. If a consumer managed to get a credit report, decipher the coded information, write a coherent dispute, and mail it, the bureaus often found some reason to disregard the challenge, without undertaking the work of verifying the credit information with the creditors. The entire dispute system was designed to frustrate and discourage the consumer and eliminate the dispute before requiring action and incurring costs to the credit bureau.
Things are a little better today, and it is easier to request and receive a credit report through various websites- for free. However, the vast majority of consumers still give up on the idea of improving their credit before they even receive copies of their credit reports.
Then on the opporite end of the spectrum, there are a lot of misconceptions floating around where people have got the facts wrong, or twisted around. Some consumers have the mistaken idea that the credit bureaus must complete their investigation within thirty days or be forced to remove all disputed information. Some of these people threaten to sue the credit bureaus if they don’t conclude their investigation in that time frame. Clearly, such thinking is wrong, if not delusional. Nobody forces the credit bureaus to do anything. Like most large businesses, they follow their set processes.
However, if you manage to submit a clear, coherent and valid dispute letter with specific dispute information, and the credit bureau investigates your dispute, your chances of success are good. Indeed many items are removed from credit reports, not only because they may be erroneous, but because the credit bureau does not receive timely response and confirmation of the bad mark from the creditor. And you don’t have to undertake this work by yourself. There are law firms that specialize in this work and do enough of it with paraprofessionals that it is not too expensive, especially when weighed against the benefits. And you can work with them entirely over the phone and on the internet.
But, here is the most important fact to understand. Thanks to the law discussed above, if a credit bureau cannot verify a disputed item before completing its investigation, that item will be removed from your credit report! And, amazingly, many creditor grantors and lenders are simply reluctant to take the time to verify the data and report back to the credit bureau. The credit bureaus are in the business of reporting credit histories, but the actual creditor is in the business of lending money for a profit. Collecting, reporting and quantifying credit data is what they pay the credit bureau for. And sometimes a creditor does not respond to the agency at all - basically because it involves a manual verification process that takes time, costs money and, depending on many circumstances, may just not be worth it to them!
So, if you think there is nothing you can do about a bad credit report and a bad credit score, think again. If you are willing to initiate the process, whether you initiate it yourself, or get some help, the law is on your side. And it is designed to protect the consumer so that if there is a lack of verification or error in the system, it will fall in your favor, instead of against you.
Written by Alexander Gray. If you are interested in learning more to fix a bad credit report, or score visit www.get-good-credit.com
