Managing Credit Difficulties

Would you know if you were having credit problems or were in "Debt Distress?" Can you answer "yes" to any of the following questions?

• Are you usually late with bill payments?
• If you lost your job, would you have immediate financial difficulty?
• Do you receive calls and letters from creditors about overdue bills?
• Have you withdrawn money from your retirement account to pay current expenses?
• Do you regularly use credit card cash advances to pay off other creditors?
• Do you put off medical and dental visits because you can't afford them?
• Do you always make the minimum payment on your credit cards?

If you've answered "yes" to any of these questions, you're probably in "Debt Distress." What's more, this "Debt Distress" can ruin your credit history and restrict your chances for getting loans in the future.

Did you know that when you apply for a mortgage or vehicle loan, a missed $60 credit card payment from five years ago could get in your way? That's right, forgetting, or just not paying a bill within the last seven years could impact your credit report when you apply for a loan.

Avoiding Bankruptcy

We have all seen the ads suggesting personal bankruptcy is the easiest answer to financial problems. However, this is usually not the case. Bankruptcy does not give you a "clean slate" financially. It has several negative repercussions including:

• When you file for bankruptcy it can stay on your credit report for up to ten years.
• You'll have trouble getting credit. Creditors seldom extend credit to someone who files bankruptcy. If they do, the rates are often astronomical.
• You'll have trouble getting any type of loan including a car loan, mortgage, credit cards, education, personal, etc.
• Bankruptcy costs everyone money. It is estimated that personal bankruptcies will cost the US economy nearly $41 billion this year. That is the equivalent of $400 for every US household.

Bankruptcy is not a "quick-fix" and should only be used as a last resort. If you are having financial difficulties, and are considering bankruptcy, talk to us first.

How will I know if there is negative information in my report?

The best way to determine if you have negative information in your credit report is to order a copy and check it carefully. For a thorough review, you should check with all three CRAs since there may be some variations in the file each CRA maintains on you. This should be done at least once a year. Because the crime of identity theft is on the rise, we recommend that you check at least one of your credit reports each six months. After the effective date for free credit reports under FACTA, you will be able to contact a centralized source that will include information from all three CRAs.

You should also check your credit report when you know it is going to be used to make important decisions, such as applying for an automobile or home loan, renting an apartment, or applying for a job. Reports should be ordered at least one to two months before you apply for credit or intend to rent. At these crucial times, you do not want to be surprised to find that your report contains negative information, especially if that information is inaccurate.

A creditor has the duty to report only accurate, complete, and updated information to a CRA. For example, if you close an account voluntarily, your creditor must report this fact in order to distinguish it from an account that is closed for nonpayment. If you disagree with a creditor's report of negative information, the creditor must put a notice of that dispute in your file before reporting to the CRA.

What can I do if there are errors in my report?

There is no denying that errors can and do appear in credit reports. The July 2000 issue of Consumer Reports cited a study where more than 50% of the credit reports checked contained errors. A more recent survey conducted by the US Public Interest Research Group found that one in four credit reports contain serious errors. There are two main reasons errors may appear on your credit report. One is when you have been mistaken for another person with a similar name and their information ends up in your file. The other more serious cause of error is fraud. Someone may have intentionally gained access to your personal information and obtained credit in your name. Instances of identity theft are increasing.

Both state and federal laws provide you with the right to have errors corrected. Credit bureaus are regulated under the California Consumer Credit Reporting Agencies Act (California Civil Code section 1785 et seq.), the laws of other states, and the federal Fair Credit Reporting Act (15 USC 1681 et seq.). For information on the law in your state, contact your state's consumer protection bureau or office of the Attorney General. National credit bureaus must have a toll-free number so you can contact them with your questions. Also, credit reports must provide an address to request an investigation of inaccurate information.

Once you have notified a CRA of your dispute, both federal and California law allow 30 business days for an investigation. The bureau must consider all the relevant evidence you give it, and errors must be corrected. If the CRA cannot verify negative information, it must be deleted from your file. You are entitled to receive a free copy of your corrected report. You may ask the credit bureau to send a corrected report to anyone who has requested your file in the past six months, as well as to anyone who has requested it in the last two years in relation to employment. Remember, when corresponding with the CRAs, be sure to make copies of all letters, and mail them certified return receipt requested.

If you disagree with the result of the CRA's investigation, you have the right to submit a 100-word explanation. The credit bureau must include the explanation in your file although the negative information will not be removed.

Some consumers who have had errors corrected find the incorrect information reappears in their files at a later date. Both federal and California laws require credit bureaus to notify the consumer within five days of reinserting information. Negative information cannot be reinserted into your file unless the credit bureau takes the added step of having the source of the information certify that it is complete and accurate. Credit bureaus must provide the subject of the report with a toll-free number to dispute the reinsertion and the opportunity to include a dispute statement. However, even if you have had errors in your report corrected, it is wise to periodically check your credit report to make sure the errors do not reappear.

The recent FACTA amendments to the FCRA also place new obligations to investigate errors on companies that furnish information to a CRA.