Overview of the Credit Industry

There are three major credit-reporting agencies in the U.S. – Equifax, Experian and Trans Union – that collect individuals’ personal financial data from financial institutions.  These agencies than use this data to determine consumers’ credit risk.  Each agency has its own way of determining credit scores, but mortgage lenders most commonly use the FICO score.

Credit scores are based on a statistical analysis of consumers’ credit reports and are used to represent their creditworthiness or likelihood that they will repay their debts.  Several factors affect a person’s credit score that include payment history, amounts owed, length of credit history, new credit and type of credit used.

The importance of good credit cannot be over-emphasized.  In today’s society credit is no longer a luxury.  It is essential for growth and prosperity.

Understand this very important fact – only 5% of the entire wealth of the world is ever printed as currency.  The remaining 95% exists in the form of credit.  So, if a borrower’s credit is not good, they do not have access to 95% of the world’s wealth, eliminating them to accessing cheaper capital.

The Fair Credit Reporting Act (FCRA) was enacted in 1970 to regulate how credit-reporting agencies use a person’s information  The act restricts who has access to an individual’s sensitive credit information and how that information can be used.  Further, a 2003 amendment to FCRA allows consumers to:

• Request and obtain a free credit report once a year from each of the three major credit-reporting companies;
• Place alerts on their credit histories if they suspect identity theft; and
• Receive a credit-disclosure notice from lenders that includes consumers’ credit scores, range of scores, credit bureaus, scoring models and other factors affecting their score.

These laws encorage consumers to look into their credit history and to ensure the information is complete and accurate.  Further, the FCRA requires that the credit bureaus make reasonable efforts to ensure the information contained in their credit reports is accurate.

There are six key FCRA provisions that ensure consumers’ right to contest negative information listed on a credit report.

• Allows individuals to dispute information in their credit report. 
• When a credit bureau receives a dispute, it must then promptly investigate and verify the information.
• The credit bureaus have 30 days to complete an investigation into a disputed item.  The bureaus must look into every disputed claim and must send the investigation’s results to the consumers within five days of its completion.  If they cannot confirm its validity, they must delete it from the individual’s credit report.  The consumer must hear the results with a week.
• Allows consumers to take a second step toward disputing negative items.  If consumers claim that evidence supporting their dispute of information was disregarded, the credit bureaus must evaluate all the documentation and transmit the information to the creditor.  As such, the company claiming a negative item on a consumer’s credit report must respond to that person’s challenge of information.
• When an entry in a credit report is deleted, it cannot be reinstated unless the creditor certifies that the information is complete and accurate.
• Allows a consumer statement to be added to an individual’s credit report.  If a consumer disputes the accuracy of certain information, and the creditor verifies it as correct, then the credit bureaus must include the consumer’s explanation of the dispute.  This gives consumers the chance to have their explanation of the inaccuracy listed directly under the negative item.

These provisions allow consumers to contest information and to clean up their credit history on their own.  But the process requires relentless follow-up and must be completed in a timely matter.

Credit Restoration is a simple process that anyone could accomplish with the right guidance and can be accomplished in a little as 90 days.