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Credit Histories and Credit Reports |
Building a Good Record
On your first try to get a credit card, you may face a common frustration:
sometimes it seems you have to already have credit to get credit -- a real catch-22 situation.
Some banks will look only at your salary and job and the other financial information that
you put on the application. But most also want to know about your track record
in handling credit, namely, how reliably you’ve repaid past debts. They turn to
the records kept by credit bureaus or credit-reporting agencies, whose business
is to collect, store, and report information about borrowers that is routinely
supplied by many lenders. These records include the amount of credit you have
received and how faithfully you’ve repaid.
Here are several ways you can begin to build a good credit history:
- Open a checking account or a savings account or both. These do not begin
your credit file but may be checked as evidence that you have money and know how
to manage it. Cancelled checks can be used to show that you pay utilities or
rent bills regularly, a sign of reliability.
- Apply for a department store credit card. Repaying credit card bills on time
is a plus in credit histories.
- Ask whether you may deposit funds with a financial institution to serve as
collateral for a credit card; some institutions will issue a credit card with a
credit limit usually no greater than the amount on deposit.
- If you’re new in town, write for a summary of any credit record kept by a
credit bureau in your former town. (Ask the bank or department store in your old
hometown for the name of the agency it reports to.)
- If you don’t qualify on the basis of your own credit standing, offer to have
someone cosign your application.
- If you’re turned down, find out why and try to resolve any
misunderstandings.
What Laws Apply?
The following laws can help you start your credit history and keep your
record accurate:
THE EQUAL CREDIT OPPORTUNITY ACT gives women a way to start their own credit
history and identity.
THE FAIR CREDIT REPORTING ACT sets up a procedure for correcting mistakes on
your credit record.
Credit Histories for Women
Under the Equal Credit Opportunity Act, reports to credit bureaus must be
made in the names of both husband and wife if both use an account or are
responsible for repaying the debt. Some women who are divorced or widowed may
not have separate credit histories because their credit accounts were listed
only in their husbands’ names. But divorced and widowed women can still benefit
from such a record. Under the Equal Credit Opportunity Act, banks must
consider the credit history of accounts women have held jointly with their
husbands. Banks must also look at the record of any account held only in the
husband’s name if a woman can show that it also reflects her own
creditworthiness. If the record is unfavorable — for example, if an ex-husband is
a bad credit risk — he can try to show that the record does not reflect her own
creditworthiness. Remember that a wife may also open her own account to ensure
she starts building her own credit history.
- Example:
Carli Garza, when married to Henry Miles, always paid their credit card bills
on time from their joint checking account. But the card was issued in Henry’s
name, and the credit bureau kept all records in his name. Now Carli is a widow
and wants to take out a new card, but she’s told she has no credit history. To
benefit from the good credit record already established in Henry’s name, Carli
should point out that she handled all accounts properly when she was married and
that bills were paid by checks from their joint checking account.
Maintaining Complete and Accurate Credit Records
Mistakes and errors on your credit record can cloud your credit future. Your credit
rating is important, so be sure that credit-bureau records are complete and
accurate.
The Fair Credit Reporting Act says that you must be told what’s in your
credit file and have any errors corrected.
Negative Information. If a lender refuses you credit because of
unfavorable information in your credit report, you have a right to get the name
and address of the agency that keeps your report. Then, you may either request
information from the credit bureau by mail or in person. You may not get an
exact copy of the file, but you will learn what is and what is not in the report.
The law also
says that the credit bureau must help you interpret the data in the report
because the raw data is rather cryptic and may take experience to analyze.
If you’re questioning a
credit refusal made within the past 60 days, the bureau cannot charge a fee for
giving you information.
If you notify the bureau about an error, generally the bureau must
investigate and resolve the dispute within 30 days after receiving your notice.
The bureau will contact the bank who supplied the data and remove any
information that is incomplete or inaccurate from your credit file. If you
disagree with the findings, you can file a short statement (100 words) in your
record, giving your side of the story. Future reports to banks must include
this statement or a summary of it.
Old Information. Sometimes credit information is too outdated to provide a
good picture of your financial reputation. There is a limit on how long certain
information may be kept in your credit file:
- Bankruptcies must not be reported after 10 years. However, information about
any bankruptcies at any time may be reported if you apply for life insurance
with a face value over $150,000, for a job paying $75,000 or more, or for credit
with a principal amount of $150,000 or more.
- Suits and judgments paid, tax liens, and most other kinds of unfavorable
information must not be reported after 7 years.
Finally, your credit report may not be given to anyone who does not have a legitimate
business need for it. Stores to which you are applying for credit may examine
your record; curious neighbors may not. Prospective employers may examine your
record only with your permission.
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