For the readers of iBi, you will notice that this is the third article I have written regarding credit reports. The first two, “Credit Scores: The Silent Killer” and “Three Ways to Raise Your Credit Score,” were positive stories explaining credit scores and how you can use them to help you. However, in the last few months, we have run into a new problem. It seems that many creditors are actually doing harm to their customers’ credit reports!
Most creditors are doing the damage without knowing it. We called 35 banks and credit unions who did not pull their reports through KCB. Only two credit unions had ever sent their loan officers to a credit reporting seminar or class. What was more surprising was that not one of the financial institutions called was inputting the purpose or type codes to identify why they were accessing the consumer’s credit reports.
Most people do not realize there are no credit reports on file for them. Twenty years ago, when I purchased the Kewanee Credit Bureau, and 30 to 40 years ago, when I worked at the First National Bank of Pekin, the Peoria and Pekin credit bureaus had 3” by 4” envelopes with information on consumers. Back then, there were actual files on consumers!
Today, it is totally different. There are no “credit files” on consumers—only 1s and 0s inside computers. Today, a credit report is created based on the information received from the creditor when the report is requested. Incomplete information submitted will return an incomplete report or no report at all. If incorrect information is submitted, anything may be returned. Here are the most common problems we have seen:
1. Pulling the report over and over because the wrong information was entered the first time or the creditor has more information on the consumer now. We have seen creditors pull a report on a consumer three and four times, adding new information each time. Every time a credit report is requested, it will lower the score, depending on the size and age of the file, from one to five points.
Each consumer should be sure to give the creditor their full name with the middle initial; whether they are a Jr. or Sr. or a I, II or III; their current and previous address; date of birth; driver’s license number and social security number. When consumers fill out applications, they should print, not write, the information.
2. Not entering the purpose or type codes. The problem comes when the creditor does not tell the credit bureau the purpose or type of loan when they request the report. If there is no purpose or type code entered, then FICO (the credit score company) has no way to exempt the inquiry from the scoring calculations and score deductions.
If you are a creditor, always enter the correct type code! A young person with little credit can easily have 15 to 50 points knocked off their FICO score if they go to a car dealer and the dealer calls several financial institutions and none enter the “Auto” type code when pulling the reports!
There are exceptions when inquiries do not adversely affect the scores:
- Multiple requests for auto or mortgage loans in the last 30 days count as one inquiry (per FICO).
- Employment credit reports do not count against the score.
- Inquiries by the consumer to see their own report with the credit bureaus or through annualcreditreport.com do not count against the score.
- Requests to review a current loan customer’s credit do not adversely affect the score.
But if there is no purpose code, FICO can’t adjust the score.
3. Not reporting loan customers and collection accounts. Seventy-five percent of a consumer’s score comes from how they pay, what they owe and who they owe. If good, paying consumers do not have their accounts reported to the credit bureaus, that lack of data could be lowering their scores by 10 to 40 points. On the other hand, by not reporting bad accounts, the creditors and collection agencies are, in effect, subsidizing or raising the delinquent borrowers scores by 30 to 100 points. If you work for a finance company, bank, credit union or collection agency, we encourage you to call us. We can set you up to report your accounts to Experian and Equifax.
4. Not reporting the high credit limit on revolving accounts. If the high credit limit is not reported, FICO compares the balance to the highest amount of dollars advanced, instead of the balance to the credit line or limit. This could over-report the consumer’s usage percent and thereby lower the score.
5. Lowering customers’ lines or credit limits. When a limit or line of credit is lowered, and a customer has 35 percent or more usage, their percent of usage is increased, thereby knocking five to 20 points off. If the line was lowered because the consumer’s score went down, the score is just knocked further down.
6. Incorrectly reporting an account. We don’t see this very often. Two examples would be: an account reported as a revolving account when it is an installment loan, and reporting an account as a line of credit when it is really a second mortgage (installment loan). Installment loans, mortgage loans and revolving loans are scored differently.
Since 2004, Illinois consumers have been able to obtain three credit reports a year for free. That is one each from Experian, Transunion and Equifax. We recommend getting one now, another in four months and the third four months later. That way you are checking your credit three times a year for free. It is very easy and you will not be asked to charge anything on a credit card.
First, go to annualcreditreport.com. Choose your state and click “Request Report.” Fill in your personal information and type in the computer-generated anti-fraud number and click “Continue.” The next screen asks you to choose a credit bureau. Only do one at a time. The credit bureaus will try to sell you a credit score. We do not recommend getting a score.
The scores they will try to sell you are not the same model or type the banks and credit unions use. The score you buy cannot be compared to any that the lenders use. The credit bureau will pull your report and ask you several questions from the items on your report. These are called “out of pocket” questions. They are an attempt to prevent someone who doesn’t know you from obtaining your report. If you answer the questions correctly, you will be given your report. You will also receive instructions on how to dispute any information on the report. Most incorrect data from creditors can be disputed online. Some incorrect personal information will need to be disputed by mail.
If you don’t have access to a computer, you can call (877) 322-8228. This is an automated service and you will not talk to a real person. Another useful number is (888) 567-8688—this opts you out of pre-approved mailings. More information on credit scores can be found at KCBInfo.com, creditfairy.org or myfico.com. iBi