If the words "credit report" give you a queasy feeling, relax—you're pretty normal. Most of us would rather undergo a root canal without anesthesia than cozy up with a credit report. But as uninviting as the process may seem, it's one of the most important things you can do to get your financial house in order. So, let's do this together.
Everything You Need to Know
1. A credit reporting agency (CRA), also called a credit bureau, is a profit-making company that gathers, compiles and analyzes credit information about individuals and then sells it to banks, mortgage lenders, credit card companies, landlords and employers so they can determine the credit rating (credit-worthiness) of a customer. There are three nationwide CRAs: Experian, Equifax and TransUnion.
2. Think of your credit report as a rap sheet. It lists all manner of allegations about you, including where you live, whether you pay your bills on time, whether you've been sued or filed for bankruptcy. If you've ever applied for a credit card, a personal loan or insurance, each CRA has a file on you.
3. There's a good chance your reports have mistakes in them. Equifax alone manages 200 million credit files and makes 2 billion updates to those files every month! According to one study, 79 percent of all credit reports contain mistakes of some kind. Inaccurate or incomplete information in your credit report could affect your ability to get credit, insurance or even a job. If you've had your identity stolen, it will show up on your credit report and can wreak absolute havoc. It's up to you to manage your report to make sure it contains only true and complete information.
4. Theoretically, all three of your credit reports should match. Realistically, don't count on it. Often the CRAs receive information from varying sources. Once something drops into a file—and a simple human error, like transposed digits in a Social Security number, could put your information into my file—there it stays until you take it upon yourself to check your file.
5. You can use the dispute process (read on) to correct information that contains errors, or to deny that the information refers to you. If you're correct and the information is found to be inaccurate, the information provider will take it off and cannot report it again.
6. However, the law does not allow you to have negative information removed from your credit report just because it's old or is damaging your credit rating. Most negative information, provided it is true, stays on your report for seven years; after that it will be removed. Bankruptcies can be reported for up to 10 years. Positive information, however, can remain there indefinitely.
7. No one, including a prospective employer, landlord or creditor, can get a copy of your credit report unless you agree in writing.
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Managing Your Report
Step 1: Acquire
By federal law, each of the big three CRAs must give you one free copy of your credit report each year, but you can't get your free reports from the companies themselves— they'll charge you a fee. Instead, go to AnnualCreditReport.com, which was set up by the government. You can order all three of your credit them one at a time. If you do the latter, stagger them throughout the year so you can check on your credit periodically.
Step 2: Review
Grab a highlighter. As you read through your report, highlight anything that you believe is inaccurate or incomplete. Also mark anything you're not sure of, such as a line of credit you don't recognize. Be thorough. If your street name is misspelled, mark it, as well as anything else you find off-base or even just a little weird. Under the law, both the CRA and the information provider (such as a credit card company) are responsible for correcting any inaccurate or incomplete information on your report. Your job is to find those inaccuracies.
Step 3: Dispute
Once you have your list of incorrect or questionable items, write to the CRA that issued the report. Tell them about these items and add that you wish to dispute each one. Be sure to keep a copy of your dispute letter or report. The CRA must investigate any items that you question, usually within 30 days, but if your credit report is a mess, it could take longer. If you don't get a response within a month, I suggest sending your dispute again. Include a copy of your original communication. A good paper trail will help you keep an accurate record of your progress. You may have to do this several times, but don't give up—persistence will pay off. If they discover that those entries are indeed inaccurate, they must notify all three CRAs to correct the information.
If, heaven forbid, you find evidence of identity theft (such as an unfamiliar credit card account in your name), immediately call one of the three nationwide agencies to place a Fraud Alert on your files. That way, no one can use a credit card with your name on it without calling the CRA first. Depending on the nature of the fraud, you may need to make a police report.
Step 4: Follow Up
About four months after your successful dispute, order another free credit report. Check to make sure that all of the information you disputed has either been corrected or removed. If not, submit copies of your disputes again. And again, until you prevail.
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3 Ways to Speed Up Corrections
Using the CRA's online dispute service is the fastest way to get errors corrected. But not all disputes can be handled online. In that case:
1. Contact Both Parties
Send a letter of dispute to both the CRA that issued your credit report and the company or creditor who is reporting incorrect or incomplete information about you. (Send to the addresses in the credit report.)
2. Be Specific
In your letter, be very clear about which information you believe is inaccurate or incomplete. Include copies of supporting documents, and enclose a copy of the credit report with the item(s) in question circled.
3. Get a Receipt
Use U.S. Certified Mail, return receipt requested. Be sure to keep copies of everything, in case you need to follow up.
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