Is the Government Monitoring your Credit Report?

Yesterday afternoon, the lead headline at DrudgeReport.com was that the U.S. Government is going to begin Monitoring Credit Reports. It would appear that, in typical Drudge style, the headline sought to create fear and distrust, implying that the government was concerned about who you were borrowing money from. This particular article remained up for only a short time, and was quickly taken down to address the more urgent matter: Democrats plan to use Batman Against Romney

An in-depth review of the Credit Report Article would suggest a more benign use of the new U.S. Consumer Financial Protection Bureau (CFFB). According to CFFB director Richard Cordray, beginning on September 30, 2012, the bureau seeks to extend oversight of the 30 largest credit reporting bureaus, which make up about 94% of the credit reporting industry in the United States. Such oversight would help ensure the accuracy of information contained in the reports, provide redress for individuals who have fallen victim to inaccurately-reported information, and provide “clarification as to what the Fair Credit Reporting Act requires of credit bureaus”.

Such an overhaul of the regulatory oversight would seem appropriate, given the importance of credit scores in today’s economy. Banks and other lenders use these scores to measure eligibility for mortgages, credit cards and a wide variety of other consumer loans. Some landlords check them to screen prospective renters, and some companies check credit reports before hiring a new employee. Low scores or problematic credit histories can mean higher interest rates or rejected applications.

A more accurate headline for Drudge to use would have been the actual headline: Consumer bureau to police credit reporting bureaus.  Given the immense power the credit bureaus have over your finances based on how they report your information, perhaps this is a good thing (inasmuch as any further government regulation can be a good thing).

FAQ #25: After bankruptcy, what steps need to be taken to rebuild my credit?

First and most importantly, time heals all wounds. Only time can fully repair the damage from a bankruptcy (and being significantly behind on a lot of credit card debt beforehand).

The best thing you can affirmatively do right now is to start developing a history of on-time payments to creditors that report to your credit bureaus. Pay your bills early, or at worst, pay them on time.

Because of the way the bankruptcy system works and the way creditors report reaffirmed debts, you will not get credit for on-time mortgage payments or car payments. Therefore, it is necessary to establish a new account that you can make solid, on-time payments on. We recommend applying for a secured credit card or gas card. Before you apply, take the time to confirm that the card management company reports to all three credit bureaus every month. If they don’t report every month, or if they do not report to all three, go elsewhere. Use the card, but pay it off early or on time, every month. Carrying a small balance (less than $100 is OK), but never utilize more than 50% of the available credit.

If you have a mortgage, then as soon as feasibly possible, refinance your mortgage. Paying off the current loan and keeping a new loan current will, once again, give you credit for on-time mortgage payments.

In addition, as soon as you feasibly can, refinance your car loan, or sell your car and purchase a new car. Again, the key is to obtain a new loan that will report to the credit bureaus. Post-bankruptcy, many current secured lenders will not report payments to the credit bureaus. Of course, be sure to keep that loan current.

Obtain copies of your credit reports approximately 90 days after receiving your discharge. Ensure every debt is reported as “Discharged in Bankruptcy” or something similar. If they are not, send a letter to the creditor and the credit bureau requesting that information be reflected accurately. Remember, your credit report is a list of your “debts”, and right now, you have no debts aside from your house and car (and any non-dischargeable debts). Make sure your credit reports accurately show that, although you had debts discharged in bankruptcy you should not currently owe any money to dischargeable creditors.

Besides paying the above-described loans on time there are also a number of things you should avoid doing:

1. Avoid opening credit accounts with co-signers, if possible. Having a co-signer on an account indicates you are a greater credit risk.

2. Avoid financing with finance companies or sub-prime lenders, if possible. Doing business with these companies can actually lower your credit score.

3. Avoid future financial risk. Bulk up your savings account. Develop a budget, and stick to it. That way, when emergencies or unexpected expenses come up, you can pay in cash, rather than increasing your debt.

4. Some industry experts recommend that you obtain a small personal loan, and use the funds to open a CD account. Pay the loan on time, and when the loan is paid off, you will have some funds in savings, which you can take out once the CD matures. Of course, this only works if you can fit these payments into your budget. Setting up a workable budget should be your first priority.

FAQ #24: If my partner is listed as an authorized user on my credit cards, will his credit be hurt?

This is an interesting question, and the answer often depends on how the information is reflected on a credit report. An “authorized user” is someone who is merely authorized to make purchases on an account, but bears no legal responsibility to repay the debt. Some credit bureaus (TransUnion in particular) often do not report credit accounts to the individual who is an authorized user only; but others sometimes do (such as Experian).

Additionally, not all credit card companies report authorized users to the credit bureaus. If you are an authorized user on a credit account, and that account is discharged, there may be a notation in your credit profile that indicates your prior access to an account, and the fact of that accounts discharge in bankruptcy. While an intelligent loan officer should understand the distinction when making a credit decision, it is important to obtain a copy of your credit report if the primary cardholder files bankruptcy in order to understand how that debt is reporting, and contact the credit bureau in writing to correct any errors.

FAQ #21: Is there any way to have a bankruptcy removed from my credit report?

The fact that you filed for bankruptcy will appear as a “public records” entry on your credit report for up to 10 years, and individual debts that were discharged in bankruptcy will remain on your credit report for 7 years after discharge. Remember that in a Chapter 7 case, your discharge is granted approximately 5 months after filing; in a Chapter 13 case, your discharge is granted between 3 and 5 years after filing, depending on your plan terms. Despite the negative effect bankruptcy can have on your credit, it is not necessarily a good idea to attempt to make no mention of your prior bankruptcy. In some cases, the fact that a debt is reflected on your credit report as being discharged in bankruptcy is evidence to a prospective lender that you no longer owe that debt, and are more able to repay a future loan. Additionally, some prospective employers would consider a bankruptcy filing evidence of a proactive attitude toward resolving a poor financial situation, as opposed to having a credit report populated with debts that have been “written off” (but still legally owed), as opposed to debts “discharged in bankruptcy.”

Paying for Debt That isn't Yours: Facts and Figures on Identity Theft

Somewhere between 9 and 11 million Americans are victims of some type of identity theft every year, with total losses over $50 billion. These victims are not just the result of sloppy online habits; even standard day-to-day practices like paying by check, mailing documents or improperly disposing of financial documents creates the risk of identity theft.

According to a recent NakedLaw by Avvo report, the threat of identity theft (and the financial risk associated with such theft can be mitigated by simple practices, such as password protection for electronic information, shredding personal documents, and keeping an eye on your credit report regularly.

For the whole story, please read the full NakedLaw article: Is the Threat of Identity Theft Overblown?

Whenever you are working to clean up your financial future, you always must be proactive about avoiding future risks, in addition to correcting past mistakes.

What hurts your Credit Score and should you care?

The Infographic provided below is helpful, at a glance, in understanding the ways that certain negative events can affect your credit score. This information is most useful for those people who already have good scores, because it tells you what to avoid to keep your score high.

But what if your score is already damaged by missed payments and other issues (foreclosure, debt settlement, etc.)? Should you care about your score?

NO

That answer may surprise you, but in our experience people are more concerned with their credit score than with more immediate present issues. Your credit score is important in that it can affect your ability to obtain loans, mortgages, credit cards, and other financing. But if you are already missing payments on your current debt, then this is not the time to worry about future financing. In other words, your credit score isn't as important as the information on your credit report. Fixing the problems on your report will lead to a good score.

So before you can worry about your score in the future, you must first get your house in order. What we tell our potential clients, in our 1-hour consultation, is that they need to set a realistic budget, whether or not they decide to file for bankruptcy. Even when you have significant debt but believe you can work your way out, you will need a realistic budget to make that happen. Until you can manage your current debt, you should not be worried about borrowing more.

Similarly, if you file for bankruptcy, you need to take steps to make sure you don't end up back in a position where you can't pay your debt. As you would expect bankruptcy is one of the worst things that can happen to your credit score. But if you are in a position to go bankrupt, your score has most likely already been significantly affected by your existing debt.

DISCLAIMER: This infographic is provided by freescore.com as an advertisement. We have reproduced it here because it contains useful and interesting information, however we do not endorse or claim any knowledge of freescore.com. We recommend that all of our clients and potential clients obtain their credit report as soon as possible. While you may choose to purchase a credit monitoring service (freescore.com, freecreditreport.com, etc.), you can obtain your credit report, once every 12 months, at annualcreditreport.com without any cost, trial membership or other enrollment. You also have a right to obtain your credit report directly from each of the three credit bureaus by writing to them directly.


[Via: FreeScore.com credit score]