Where Credit Is Due

Credit Is One of life's little jokes: either you can't get any at all or you're wondering how the hell to get off all those mailing lists for preapproved cards. Which category you fall into doesn't necessarily have anything to do with your actual financial status or your reliability when it comes to paying bills. What really matters is what kind of risk the credit-issuers believe you to be, based on their interpretation of the information available to them. Needless to say, what they think sometimes diverges a tad from reality.I'm a perfect illustration. Though I achieved a relatively ripe old age without benefit of a credit card -- a decision based almost as much on principle as it was on poverty -- I eventually realized that plastic does come in handy in emergencies. But by that time credit card issuers had lumped me into the category of resolute weirdos (no credit history at the age of 29!) and wouldn't touch me with a 10-foot pole.So I did an article about how to get credit, hoping that I would learn something useful. And I did; but before I had time to put my newfound strategies into action I got an offer in the mail for a preapproved American Express card, which, though not a real credit card (you have to pay it off every month), gave me a blip on the old credit- history radar.Now, several years later, I have two gold cards, and offers for more of them clog my mailbox every day. My financial situation and bill-paying reliability haven't miraculously improved -- as a matter of fact I no longer have a steady job, and my income frequently resembles a bad joke -- but I do have a good track record with some credit card companies, and that sets the competition's bells to ringing.WHAT THEY WANTIt was luck of the draw in my case, but if you have no credit history or some bad marks on your record, you do have a few more options than waiting around until American Express gets desperate for customers again. Despite all the articles about secret credit scores, there's really no mystery about what credit issuers look for in a customer: they want some evidence that you'll be reliable about paying your bills (although they'd prefer that you not pay them off too quickly). The real questions lie in what they look at in order to determine your reliability and what you can do to brighten the picture.While credit issuers do consider such things as your income and length of residence, the tool they rely on most is your credit report, compiled by the "big three" credit bureaus: TRW, Equifax, and Trans Union. The bureaus create a file for you the first time you apply for credit and the issuer asks for your history. Your report will be based on information provided by creditors and collected from public records such as court documents and bankruptcy filings. Of course, there won't be anything -- at least anything positive -- in your report until you actually establish some credit.When it comes to establishing (or reestablishing) a credit history it's important to realize that certain things don't count -- for instance, student loans, which only show up on your report if you don't pay them. Also, credit issuers don't care if you're a good little person about paying your rent and utility bills, because those don't show up on your record either.What does? Well, credit cards for one, and also American Express and some travel and entertainment cards, cards from major retailers, and bad legal stuff (that you can count on). Also bank loans, cards from some medium-size retailers, and some records of financing for major purchases, such as a car. It all depends on whether or not the creditor is a credit- bureau subscriber; only subscribers report to the bureaus on a regular basis.One other thing that regularly shows up is recent inquiries: If you apply for credit, the credit issuer will ask to look at your report, and that request will then appear on your report. This is an important point, because creditors tend to worry that you might be overextending yourself if they see too many hits on your report in too short a time. Never take the scattershot approach to credit applications; try to assess your chances for being accepted before applying, and choose your targets carefully.GOT NO RECORD?So what do you do if you have no credit record at all? You can try to convince someone to co-sign for a loan or a card that's in your name (just having your name added to someone else's card doesn't work). One tried-and-true method is to apply for a department-store or gas card -- but make sure the issuer reports to the credit bureaus. Also be aware that department-store cards tend to charge phenomenally high interest rates, and that you actually have to use the card for it to show up on your report. Look for the card issuers that are being marketed most aggressively through advertising and mailings; they're the ones that are hungry for customers and therefore less likely to turn you down.More credit unions are now offering their own credit cards, so if you belong to one, be sure to ask what is required. Usually a credit union can be more flexible about granting credit than a megacorporate monster bank can and is more likely to care that you've been a good customer. You might also try to get a small loan from your credit union or bank (or another small lending institution), especially if you have anything to use as collateral.If you have a little spare cash, a secured card is a real possibility. A number of banks will issue you a regular MasterCard or Visa if you deposit a certain sum for them to hold as collateral for your line of credit (usually the minimum is $300 to $500; the maximum can be in the thousands). Secured cards show up on your credit record as regular credit cards, and in many cases the bank will put your deposit into a CD and pay you the interest on it. If you pay your bills regularly for a period of time (typically 18 months or so), you may be eligible to switch to an unsecured card and get your deposit back. But be wary: there are some disreputable outfits that offer secured cards; look out for any that charge a large fee just to apply. Finally, if you've been itching to make a big-ticket purchase like a car or a major appliance, you might be able to get financing for it if you can make a large down payment. Two caveats: make sure that you understand the terms of your installment plan (you don't want to end up paying double the price for that big-ticket item) and that your payments will be reported to the credit bureaus.SIDEBAR: Bad CreditIf you already have a credit history but your applications are being turned down, the first thing to do is get a copy of your bureau reports, see how bad the damage is, and try to erase all the negatives you can. If you owe a lot of money, you'll need to talk to your creditors yourself or go to an organization like Consumer Credit Counseling Service to consolidate your debt and set up a payment plan. Be aware, though, that some creditors report reduced payments as delinquencies, even if you're paying on schedule.Cleaning up a poor credit record generally takes a while. One thing you can do -- beyond paying off your debts and just waiting it out -- is make a special effort to encourage creditors to report all your positives to the bureaus.Do not under any circumstances buy the claims of those credit-repair clinics -- you might end up paying through the nose for nothing. One of the strategies promoted by some credit-repair firms involves your applying for an employer ID number, which is essentially indistinguishable from a social security number, and creating a "new" credit identity with it. That, of course, is quite illegal and could result in fines and even a jail term if you're caught.If your debts aren't too bad, you may be able to reestablish credit with a secured credit card, a small loan, or a financing plan for a large purchase. Be prepared to explain your current difficulties to a potential credit issuer and show that you're dealing with them.Finally, even if your credit is shot, remember that everything passes with time. By law, most negative information must be wiped off your report after 7 years, bankruptcies after 10. -- Eileen EcklundSIDEBAR 2: Getting It Right--Requesting And Correcting Your Credit Report If you've been turned down for credit, you have the right to know if your credit report figured in that decision, and if so, which bureau was used. The bureaus are required by law to make your records available to you at a reasonable cost, and at no cost if you've been denied credit within the last 60 days. California law caps the cost of annual credit reports at $8, and TRW provides one complimentary copy of your report per year. Even if you haven't been turned down for credit, you should request copies of your reports fairly regularly to check their accuracy. It's pretty common to find old -- and just plain wrong -- information.Equifax and Trans Union will allow you to request copies of your report through their interactive phone services in some cases, and Equifax allows you to fax a request for a free copy if you've been denied credit. TRW always requires a written request. Each bureau has slightly different requirements regarding the information you must provide in order to get your report, but if you give them all of the following, you should be covered: your full name (including information such as Jr., III, etc., if applicable); your social security number; your spouse's name and social security number, if applicable; your present home address and previous addresses for the last five years, including zip codes; year of birth; verification of your name and current address, such as a copy of your driver's license or a utility or credit card bill; and daytime and evening phone numbers. If you're submitting the request by mail or fax, you should also sign it (and so should your spouse, if it's a joint request). If you're asking for a free report because you've been denied credit, be prepared to provide a copy of the rejection letter. If you're requesting a report by interactive phone service, be prepared to provide most of the above information verbally.The bureaus are supposed to provide a copy of your report within five days of receiving the request, but it sure took TRW and Trans Union a long time to send mine.EQUIFAX: Mail requests to P.O. Box 105873, Atlanta, GA 30348, or use the interactive phone service at 1-800-685-1111 (the phone service requires a credit card to pay the fee, if a fee is applicable). Requests for free copies can also be faxed to (770) 612-3150.TRANS UNION: Mail requests to P.O. Box 390, Springfield, PA 19064. If you've been turned down for credit, you can order a copy through the interactive phone service at (316) 636-6100. For information, call 1-800-851-2674.TRW: Requests must be made in writing. You are entitled to one free copy of your TRW report per year. P.O. Box 8030, Layton, UT 84041-8030. For information, call 1-800-392-1122.If you find information in your report that is incorrect or outdated, dispute it by writing to the bureau; instructions for doing so should be included with the copy of your report. Do not expect this to be an easy process: reports from the front indicate that it can bear an uncanny resemblance to a Kafka novel. The bureau is supposed to change the information if it can't be verified within 30 days, but if the creditor claims the information is correct, the bureau will take the creditor's word for it, and you'll have to take it up with the creditor yourself.If that tactic doesn't work, you have the right to place a 100-word statement in your file disputing the information. You might not want to do that, though; according to the book Consumer Rights, by Barbara Kaufman (Nolo Press), bureaus may keep the statements in your record for seven years, even if the negative information is no longer there. Instead, Kaufman recommends that you explain the dispute to prospective creditors when you apply. If you do decide to put a statement in your report, she says, always tie it to a specific item -- never attempt to explain bad credit generally, even if you have good reasons.Beyond those procedures, you have few alternatives for correcting inaccurate information, even if you can prove it's wrong. You could send a written complaint to the Federal Trade Commission, which oversees credit bureaus (but doesn't intervene in individual disputes), or to the California Department of Consumer Affairs (I wouldn't hold my breath). You might also be able to sue for libel or defamation of character, but you'd better be sure it's worth it. You should also be aware that incorrect information has been known to pop back into people's reports after it's been removed -- another reason to check your reports regularly.-- Eileen Ecklund

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