CREDIT REPORTING

 

 

The credit reporting system is dominated by the big 3 Credit Reporting Agencies and their local bureaus.  The Fair Credit Reporting Act refers to Transunion, Experian and Equifax-CSC as Credit Reporting Agencies or CRA’s.  The CRAs utilize information provided by furnishers.  Furnishers are creditors and others with information about the credit performance of consumers that supply that information to the CRAs. 

 

While the technological advances of the last decade may not have dramatically altered the average law office they have dramatically affected the ability of CRAs to store, transport, sort, share, and analyze credit data.  This has led to new and aggressive uses for credit information beyond a basic local credit report.

 

The Credit Score.  The most aggressive use of this information is the credit score.   The Fair Isaac Company creates computer programs that calculate credit scores, commonly referred to as FICO (Fair Isaac Company) scores.  The range is usually 500 to 850 with a higher score indicating a lesser credit risk.  The lesser credit risk should in turn receive better credit terms.    Factors that affect credit scores include:

a.      amount of total credit,

b.      amount of credit used as a ratio of available credit,

c.      payment history,

d.      number and type of credit inquiries,

e.      income and employment,

f.        length of credit history, and

g.      amount of credit activity. 

 

The importance of a credit score can be found in this table which was copied from the Fair Isaac website in 2004.  It assumes a 360 month (30 year) mortgage for a principal amount of $150,000.00:

FICO Score	Interest rate	Monthly payment
720-850	5.56%	$857
700-719	5.69%	$869
675-699	6.22%	$921
620-674	7.37%	$1,038
560-619	8.53%	$1,157
500-559	9.29%	$1,238

 

A more complete explanation can be found at www.myfico.com.  Fair Isaac provides a basic scoring model to Equifax  (FICO), Experian (Empirica) and TransUnion (Beacon).  Theoretically, a credit score should be the same for all three reports.   

 

Also note that the major credit reporting agencies (Experian, Transunion, and Equifax) in early 2006 announced a new scoring system called Vantage which will mimic the FICO score but do so on a 400 to 1000 scale.

 

However, Users of credit reports can design and buy unique scoring models from Fair Isaac.  For instance, a mortgage company may place greater emphasis on length of credit history, and credit to income ratios   An automobile finance company may place a greater weight on prior repossessions and current income levels.  A credit score is a moving target which depends on the time of the report, the data in the report, and the scoring program. 

 

The use of credit reports has accelerated in the last 3 years.   Credit reports are now routinely used for:

1. Housing applications for rental and purchase;
2. Credit applications;
3. Employment applications;
4. Insurance applications and rating systems;
5. Government security clearances; and
6. Review by existing creditors.

 

The only certainty in this system seems to be that the importance of credit information about an individual will grow in importance.

 

 

 

BASIC TYPES OF CREDIT REPORTING PROBLEMS

 

Disputed Accuracy.  The FCRA operates on the presumption that the information in the CRA files is accurate.   That presumption may be rebutted by a consumer dispute.     15 USC 1681i.   Upon a complaint, the CRA must investigate the complaint and cannot charge a fee to do so.  Within 30 days the CRA shall either forward the complaint and any additional information to the furnisher.  After a response from the furnisher the CRA must:

a)      confirm the information as reported,

b)      revise its report as necessary,  or

c)      delete the information entirely. 

If the CRA retains the information as submitted by the furnisher, it must note that the consumer disputes the account.    A copy of a dispute letter to a CRA is attached to this paper as Exhibit C.

 

Mixed Credit Files.  Mixed File Cases involve the blending of the credit files of two persons.    This frequently happens for similar sounding names and can be a real problem for the affected person.  Imagine the chance of a mixed credit file if your name is John Jones or Juan Garza?   Or if you are a Jr., Sr., or the Third?     The CRA’s often resist complaints in this area because of the difficulty of the correction.  Simply put, the computer programs are not programmed to make these distinctions.   Accordingly, your client may be extremely frustrated and will probably need the help of an FCRA practitioner.  

 

Identity Theft and Fraud.  These are similar to a Mixed Credit File situation except that someone has obtained your client’s social security number, driver’s license number or other significant information.  Even if the pattern of charges is obvious, the CRA’s often require tedious documentation of the claim. Accordingly, your client may be extremely frustrated and will probably need the help of an FCRA practitioner.  

 

Impermissible access.  The FCRA limits the permissible purposes for the use of a credit report.  15 USC 1681b.   Reports in litigation are not allowed absent a debtor–creditor or other allowable relationship.   A divorce between spouses is not one of those permissible purposes. Chiappeta v. Telefson 1985 WL 1951 (N.D. Ill. 1985). Rodgers v. McCullough, 296 F. Supp. 2d 895 (W.D. Tenn. 2003).   However, an award of alimony may create a creditor relationship which allows the creditor spouse to obtain the credit report.   Chiappeta v. Telefson 1985 WL 1951 (N.D. Ill. 1985).

 

 

 

What you should do

 

Monitor your credit report.   You are allowed to obtain one FREE credit report each year.  You can do this on www.annualcreditreport.com.   Check the information that is being reported about you.  If it is wrong dispute the information but DONOT USED THE INTERNET.  The internet is much easier but if the CRA does not voluntarily correct the information you will want to prove that you sent the dispute.    A certified mail return receipt letter and the correspondence that you sent to the CRA is much easier to submit to a court and more persuasive to a jury if you should need it in the future.

 

Contact a qualified attorney.   The Fair Credit Reporting Act is a specialized area of  law that requires special training.    The CRAs each have a national law firm with a team of lawyers that have special training and special forms to defend their multi billion dollar clients.  If you need helping this type of case you should hire a member of the National Association of Consumer Advocates that has learned how to handle these types of cases.   See www.naca.net for names of attorneys such as myself that do this type of work.