10 things credit bureaus won’t say
They’ve got your number. And they’re not afraid to use it
By AnnaMaria Andriotis
Dave Whamond
1. “We track a lot more than just your credit.”
Credit bureaus are well known for tracking consumers’ credit history, including tabulating such details as whether they pay their bills on time and how much debt they carry. And as evidenced by the recent case of Julie Miller, who was awarded $18 million after she sued Equifax — one of the three main credit reporting bureaus — for failing to correct major mistakes in her credit report, the information they compile can sometimes be riddled with errors. Overdraft charges now 60% of checking fees
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Consumers’ salary information can also be up for grabs. Equifax, one of the three national credit bureaus, maintains a private database of salary records on more than 33% of U.S. adults — information it acquired when it purchased a data-mining company in 2007 — and it can sell this data to eligible lenders, including mortgage and car finance companies, that are trying to gauge a consumer’s ability to repay a loan. This year, seven members of Congress sent a letter to Equifax asking for proof that its subsidiary isn’t breaking laws that protect personal privacy. (The other two major bureaus, Experian and TransUnion, say they don’t collect salary information.)
Timothy Klein, a spokesman for Equifax, says the company provides salary information only when permissible under the Fair Credit Reporting Act, which went into effect in 1970 and regulates how consumer information can be distributed. A company statement to congressional members stated that it’s in “compliance with all applicable consumer protection laws.” Also, he says, the company will only provide this data to lenders if the consumers first agree to it.
Lenders have to ask consumers for permission to verify their employment or income, typically by including language authorizing that disclosure in the loan application, says Klein. If the consumer declines, he says, it’s up to the lender to determine whether to offer a loan without income information.
2. “Selling your secrets is how we make our money.”
Each of the three major credit bureaus, Equifax, Experian andTransUnion, maintains more than 200 million files on consumers, according to the Consumer Financial Protection Bureau — tracking about 63% of the U.S. population. And the bureaus sell some of that information to lenders. Selling data is a primary revenue source for the credit bureau industry, which had U.S. revenue of about $4 billion in 2011, according to the CFPB. Bureaus also sell data to other companies, including insurers and debt collectors, as well as to consumers, says John Ulzheimer, president of consumer education at SmartCredit.com, a credit-monitoring site.
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Lenders also pay the bureaus for updates on existing customers: Some card issuers will pull credit scores on their cardholders to determine if they’ve become riskier, says Ulzheimer. They can use a lower credit score as a basis for cutting a customer’s credit line or increasing their interest rate on new purchases, he says. (They can also check to see if their customers have become less risky, in which case they can make more credit available.) Feddis, of the ABA, says every transaction on a credit card represents a new loan, so lenders check on their customers to make sure they’re still eligible for revolving credit and likely to be able to repay the loan.
To be sure, the Fair Credit Reporting Act states that credit bureaus can provide consumers’ information to companies that plan to make a firm offer of credit. Magnuson of the CDIA says the credit bureaus are careful about who has access to their systems, and they vet the lenders’ intended uses of credit reports. He adds that consumers can benefit from this dissemination, because they stand to receive loan offers that are less expensive than what they may currently have. Individuals who’d like to avoid solicitations can remove their name from the lists that credit bureaus sell by visiting OptOutPrescreen.com.
3. “What we know could cost you a new job.”
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Job applicants have to be informed if their credit report will be reviewed. (At least seven states prohibit companies from conducting credit checks on many job applicants.) Under the Fair Credit Reporting Act, which regulates how consumer credit information is handled, companies must get permission from applicants in writing to check their credit reports. While applicants can deny the employer permission, they might want to consider instead explaining the circumstances that led to their credit problems, says Ulzheimer, since that may improve their chance of getting the job.
4. “Good thing no one’s reporting on our mistakes. Oh, wait.”
When errors appear in credit reports, the impact on those borrowers can be severe. Negative information, like missed payments or a foreclosure, can send the borrower’s credit score (which is calculated based on the details in the credit report) into a tailspin. That, in turn, will make it harder to get approved for credit, increase the chances of ending up with higher interest rates on loans, and even make it tougher to rent an apartment (many landlords check consumer credit) or, again, get a job.
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The credit bureau industry, however, says the FTC data confirms that few errors of consequence occur. The CDIA’s Magnuson says the bureaus work with lenders to reduce errors, and that in most cases, consumers aren’t disputing that an account is theirs but rather have an issue with how their lender is reporting an account, such as the balance or whether they missed a payment.
5. “You all look so much alike…”
When consumers order their credit reports, they have to provide their full name, Social Security number, date of birth and address. But credit bureaus often use fewer pieces of information to match account activity — like a report from a lender that a person has applied for a new line of credit — to borrowers’ credit reports. In many cases, they’ll only use seven out of the nine digits of the borrower’s Social Security number, says Chi Chi Wu, a staff attorney with the National Consumer Law Center, a nonprofit focused on consumer advocacy.
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Magnuson says the credit bureaus are careful in matching data. He adds that a 100% match wouldn’t solve such concerns and says it would force bureaus to omit account activity from credit reports whenever there’s a small mistake in, say, the last two digits of a Social Security number, even if most of the identifying information is correct.
6. “… it’s tough to tell you apart from someone pretending to be you.”
In many cases, consumers only find out they’re victims of identity theft when they pull up their credit report and spot a fraudulent account, says Jay Foley, partner at identity-theft consulting firm ID Theft Info Source. In fact, identity theft is a cause of credit disputes, according to the CFPB.
While lenders have mechanisms in place to stop identity thieves, they’re not always successful. In those cases, when thieves apply for credit under a consumer’s name, the lender pulls that unsuspecting person’s credit report, tells the credit bureaus to add the loan account to that report, and then communicates missed payments to the bureaus, tarnishing the credit score tied to that account. Then, when consumers find out they’ve been a victim of identity theft — rather than the burden of proof being on the credit agency or lender — they have to provide the credit bureaus with evidence of their innocence.
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Consumers who learn a fraudulent account has been opened in their name should consider filing a police report and sending a letter with a copy of that report to the credit bureau and the lender who approved that account. In such cases, lenders will usually get fraudulent accounts removed from a credit report within 90 days, says Foley.
7. “Your ‘credit dispute’ doesn’t quite capture our attention.”
Credit bureaus recommend that consumers check their credit reports at least once a year (they can do this for free at annualcreditreport.com) and file a dispute if they notice any errors. But consumer advocates contend that the dispute system is broken. No matter how many papers and other documentation consumers submit to the bureaus, the bureau will apply a two- or three-digit code that offers a brief summary of the dispute, such as “not his/hers” or “disputes amounts,” according to the NCLC. The bureaus will send that code and a one-page form to the creditor involved in the dispute. “We’ve seen [court] cases where the consumer attached canceled checks, letters from [lenders], and court judgments saying this is wrong and none of that gets sent,” says Wu. (The CDIA says it’s in the early testing stages of sending consumers’ documentation to lenders.)
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But experts say when lenders are forwarded consumers’ discrepancy claims, some will just review their own records with the bureau’s to make sure they match — though both could be wrong. Wu says lenders will use this as a basis to reject the consumer’s claim. The American Bankers Association says lenders conduct investigations but that how deep they go depends on the nature of the consumer’s dispute.
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8. “But bypass us on a dispute, and it’ll cost you.”
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9. “By the time you’re done fighting us, your toddler could be a teen.”
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10. “Be careful what you pay for.”
For a price ranging from $7 to $20, credit bureaus and other companies will sell consumers their credit score. But in some cases, consumers are paying to see an “educational score” — one that’s based on their credit activity and can give them an idea of where they stand as borrowers — rather than the actual score a lender will see when reviewing their loan application.
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