Credit Reporting Basics
There is a basic common law principle that anyone can tell a story about anyone else as long as it is a truthful story. When the story begins to skew away from truthful (which is obviously a debated issue) then that’s when common law principles of defamation, negligence, and invasion of privacy begin to become relevant.
The term “consumer report” means any written, oral, or other communication of any information by a consumer reporting agency bearing on a consumer’s credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living which is used or expected to be used or collected in whole or in part for the purpose of serving as a factor in establishing the consumer’s eligibility for—(A) credit or insurance to be used primarily for personal, family, or household purposes;(B) employment purposes; or (C) any other purpose authorized under section 1681b of this title.(15 U.S.C.§ 1681a(d))
In general, the way that most credit information moves is that the creditor types the credit account data into their database in the Metro2 Format and then they push the data (which should be no less frequently than monthly) into the database of the third-party consumer reporting agency, who will then sell that information to a User (such as a future potential creditor, employer, or insurance provider for the general purpose of evaluating risk.) Credit risk can be easily and quickly assessed by use of a credit score. A credit score is a 3 digit number that is based from any number of algorithms that take the data and score it. In this manner, a User can quickly assess the risk associated with a consumer based on empirical scoring rather than based on just reading credit data and attempting to determine a manual risk.
In today’s disconnected and high-pace world, consumers rarely know the people with whom the have credit relationships, so the need for accurate credit reporting is essential so that a creditor can make an informed decision about the risk associated with the potential debtor applying for credit (applicant). When this user wants to obtain a credit report, he must do so with a “permissible purpose” as outlined under FCRA. Often times, this can include getting written permission from a consumer to allow the user to obtain the consumer’s credit. This permission is usually obtained by signing a credit application. The credit application contains basic information on a consumer such as name, address, date of birth, Social Security Number, etc… The user then types this information into the computer and submits it to the CRA. This submission to obtain a credit report is known as a credit “inquiry” and inquiries are required to show in the consumer’s credit report for two years. The CRA will then use the personal identifying information that was submitted to them by the user and they will cull and sort through the hundreds of millions of records in their database and they will attempt to merge the data that is associated with those particular key identifiers into a report. This information associated with the consumer is known as the “credit file” and the report produced for the lender is known as a “consumer report”. At the time that the data is prepared and turned into a consumer report, the user may opt to run a credit scoring algorithm through the data and this will create a credit score that is printed on the consumer report. In this scenario, the user communicates directly with the CRA to obtain the consumer report. An alternative scenario is if there is an intermediary party known as a “reseller”. A reseller is technically a type of CRA but they act as middlemen between users and CRA’s. Under this scenario, the User would submit the credit report request to a reseller who then ties into the CRA’s database and pulls the credit file and turns it into a consumer report for the user.
If a consumer is declined for credit from a user, then the user must send a written “adverse action notice” to the consumer and then the consumer is entitled to obtain a free “credit file disclosure” within 60 days. A credit file disclosure is different from a consumer report in that the credit file disclosure is supposed to contain “all information” contained in the consumer’s file. In reality, when a consumer obtains a credit file disclosure, it is often times missing data that should otherwise be (or maybe actually is but was not printed on the credit file disclosure) contained in the credit file based on the industry standard for accurate credit reporting.
If a consumer is declined for credit, he is a good candidate for our credit repair services and we employ different strategies to assist the consumer to fight the CRA’s and creditors and to improve the quality of the credit report. Many types of errors can occur with the credit information between errors derived from the data not conforming to the industry standard or errors derived from outright inaccurate information based on the underlying credit transaction.
The FCRA creates several ways to notify a CRA or creditor (known as a “furnisher” of data (to the CRA’s) of inaccurate information and it creates several dispute mechanisms that, once engaged by the consumer, require the CRA or the furnisher to act a certain way in order to assure the maximum possible accuracy of the information.
One dispute is when the consumer disputes directly with the CRA. The CRA may either terminate the reinvestigation as frivolous, fix the information itself within 3 days, or forward the dispute information to the furnisher within 5 days. If the information is forwarded to the furnisher, the furnisher must conduct an investigation of the disputed information and either notify the CRA prior to the expiration of 30 days that the information was inaccurate and needs to be corrected or the furnisher can notify the CRA to delete the information if it can not be made accurate. Then, the CRA must provide the consumer with a written notice of the results of the reinvestigation as well as an updated consumer report with the new information.
A second dispute is similar and it involved the consumer disputing directly with a reseller if that report contained errors.
A third dispute allows the consumer to dispute directly with the furnisher.
There are several other ways that the consumer can put the furnisher on notice of inaccurate information as well as fraudulent information that is being reported in the credit file as a result of identity theft.
The consumer can also put the CRA on notice of identity theft and the CRA is supposed to delete the information within 4 days and then forward the consumer’s dispute to the furnisher.
Additionally, the consumer can put any business entity that has used a consumer report on notice that that information was used to open a fraudulent account and the consumer can force the business entity to provide copies of the credit application and the account records to the consumer.
Personal Identifying Information – Information such as name, address, SSN, and employer can be included in the personal information section of the credit report. This information is obtained either by the credit bureau directly or by a data furnisher (such as a creditor) reporting information about a client’s account to the credit bureau which contains personal information. All information in a consumer file is supposed to identify the source of the information; however, often, the personal information section fails to disclose this. You will find the personal info associated with Metro 2 as well as other non Metro 2 personal attributes on lines 12195-12277.
Public Records – Some credit bureaus include information about public records and credit accounts. These credit bureaus are actually referred to as nationwide consumer reporting agencies. Public records can be bankruptcies, judgments, tax liens, etc. Often this information is not furnished to the credit bureau by the courthouse; rather, the credit bureaus actually go to the court houses and get the public record information themselves. Public records do not use Metro 2, and I do not know what the data format is called, however, you will find a series of public record judgment and lien attributes on lines 5249-5330 and 5345-5405 that can be disputed. Sometimes a consumer has paid a judgment and we need to send that proof to the credit bureaus to get the reporting corrected and sometimes we want to do a full blown data audit in order to challenge the accuracy and to get the item deleted from the credit report, if possible.
Inquiries – Whenever a credit report is prepared for a user by a credit bureau, then that inquiry should be listed in the report for 2 years. You will note that some attributes associated with credit inquiries are on lines 5156-5176 when we want to structure a dispute challenging the accuracy of the credit inquiry notation on the report. The practical reason to do this is because if a consumer is trying to get credit, some underwriting guidelines will decline the consumer for credit if there are too many recent credit inquiries because this can be an indication that the consumer is desperate. So getting inquiries deleted can be a good strategy for some clients.
Collections – Some credit reports list collections as a separate section from the rest of the credit information. A collection is an account that has defaulted and is no longer being repaid according to the contract terms.
Credit Accounts – Credit information should be reported on a monthly basis by the furnisher. Much of the account information should be reported every month, so when you look at a credit report, you should see “historical” data and “current” data. The historical data is the history of the account for each prior month and the current data is the information for the month as of the date reported. In reality, many credit reports do not provide all of the historical data and this is incomplete or inaccurate credit reporting in our opinion. You can look at the industry standard Metro 2 here: http://www.findforms.com/pdf_files/ded/35327/174-6.pdf Section 4-1 shows the field definitions of the data fields. Lines 319-628 of the Broad Workflow show credit account attributes, some of which are the Metro 2 credit reporting attributes. You will also note that some of these attributes reappear on lines 5993-6037 as some reasons for a credit dispute.
Looking for Accuracy – When we review a credit report, we look at the data against the Metro 2 Standard. Many credit reports do not provide data that conforms to this standard for a variety of reasons. Sometimes the field title is not the same as the metro 2 field title and sometimes the data does not conform to the data options for that field within Metro 2. Or, maybe the data is not entered at all. All of these are problems.