March 17, 2021
By Angie Week
Credit Myths Dispelled
As we navigate through this new world of normalcy that we live in, one thing is for certain 2020 and now 2021 has provided us with the opportunity to put a lot of things into perspective which includes the importance of credit and what that means to us. While the understanding of credit can become complex, there are some basic principles that one should know when it comes to their own credit, how to fix it, where to fix it, how it can hurt or help you and the role that a credit reporting agency has in the whole matter.
Starting with credit reporting agencies… Many people do not realize that there are many credit reporting agencies out there, however, the three main nationwide credit reporting agencies used are Experian, Equifax and Transunion. Myth buster…. Credit reporting agencies (CRAs) are NOT responsible for your credit scores. A credit reporting agency is in its simplest form a huge data repository or better yet, a library full of data where you need a valid library card to check out any of the data which is known as a permissible purpose. The data housed within a credit reporting agency is governed by a regulation called the Fair Credit Reporting Act (FCRA). Under the FCRA, an entity must have a valid permissible purpose in order to obtain your data. Examples of a permissible purpose would be to extend credit, consumer provided consent and other various purposes which can be discussed in greater detail in another article.
Another myth buster is that a CRA retains your credit score. In actuality, a credit score is determined based on an algorithmic scoring model such as FICO or Vantage that leverages the data retained within each of the CRAs. There are 1000s of scoring models out there, however, the most notable one is FICO. Even with FICO they have many different FICO scoring models. For instance, the credit score you may see from sites like Credit Karma, is different than the scoring model used in mortgage. The same goes for scoring models for auto dealerships and credit cards. The point is, not every credit score you see is rated the same. Therefore, in order to ensure favorable scores, continue to pay on-time, keep low utilization rates and a mix of credit.
Another common misconception within credit is the use of credit repair companies….
So, before we get into the pros and cons of credit repair, it is important to understand how they operate. First, a credit repair company is defined as a third-party organization who attempts to provide, perform or sell a service to improve a consumer’s credit history, record or rating in exchange for payment. Credit Repair Organizations (CROs) are governed by a regulation called the Credit Repair Organization Act (CROA). This act outlines what these organizations can and cannot do when it comes to your credit.
Because this is a highly discussed topic, below is a condensed list of what a CRO is prohibited from doing. Watch for a few myth busters to come your way
A CRO may not
- Advise a customer to make false statements to a credit reporting agency
- Advise a customer to change their identity to prevent credit information from being associated to them
- Charge a consumer a fee for services not yet rendered
- Guarantee that they can remove information from their credit report
A CRO must notify a customer of the following:
- That they can dispute their own information
- They can sue the credit repair organization if they violate CROA
- They cannot force you to sign any type of waiver that makes you give up your rights
Funny fact, the state of Georgia considers the act of credit repair to be considered a misdemeanor!
Now let’s discuss pros and cons of credit repair.
Credit repair is legal in the US except Georgia. A pro to using a credit repair company is that it can be useful if you just don’t have the time to dispute data yourself or not familiar with rules, regulations, and consumer rights pertaining to the matter. Most credit repair companies use the method of mass mailings to inundate the CRA, lenders or debt collectors with dispute requests. The hope is that one of the entities will fail to respond within 30 days as required under the FCRA and as a result, delete the disputed information. Well, this may or may not work. This is where the con comes into play. If it turns out that the information that was being disputed is accurate, there is a possibility that the lender or collector will report that data again during the next reporting cycle. If the information is accurate, there is nothing stopping the furnisher from reporting that same information back to the bureaus unless it has reached the maximum amount of time derogatory data can be reported. If this occurs, you as a consumer must be notified when information previously deleted will be reinserted, but the point is, the information you paid to have deleted is back. What is the satisfaction in that?
Another downside is the cost. If you have the time, use that money to pay off a bill or put to some other good use. In today’s society all three bureaus have made it very user friendly to dispute information online in 20 minutes or less. Additionally, you can check your credit every week from all three bureaus up until April 2021. By doing so, you have empowered yourself to know what is on your credit and where you stand. So, if you are in the market for a major purchase, not only are there no surprises but you have a head start in ensuring your credit is in order.
All in all, unless you like and are willing to pay for the convenience of a third party doing the work for you, you can take on challenging and disputing any erroneous items or your credit report yourself. If you are paying a third party to remove accurate derogatory items allowed by law to be there, chances are you are blowing your money away.
Note: There is soooo much more information on credit, this is a very small piece of the pie.
Author: Nerissa Rush. Nerissa is a credit ambassador with Experian and a real estate agent with Real Estate Legends USA offering her services in So Cal. She is a member of and you may connect with her on Moreandmorenetwork.com.
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