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Knowing the Score
By Karen Hube, May & June 2005
A bad credit rating is dragging him down. Can he fix it in time to snag a good refinancing deal?
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When Charlie Lange, 62, of Colorado Springs decided to refinance his
mortgage, he got a nasty surprise: his mortgage lender said he didn't
qualify for a lower interest rate because of "credit problems."
Charlie prides himself on paying his bills on time and has never had trouble
qualifying for credit or loans in the past. So he did the smart thing. He got a
copy of his credit report, which lists the status of accounts in his name.
(Thanks to a new law that becomes effective nationwide this year, he can get a
free copy of his report by visiting www.annualcreditreport.com
or calling 877-322-8228.) And there he found the cause of the problem: the
report showed he had a judgment against him for failing to pay off a student
loan.
The Problem
Charlie knew instantly there'd been a mistake. It's been four
decades since he graduated from college, and he never even had a student loan.
He explained that to his mortgage lender in hopes of convincing him that he was
creditworthy, but had no luck. Now, as interest rates threaten to creep upward,
Charlie isn't sure how to scrub his credit report clean in time to snag a
good refinancing deal.
The Plan
I hate to break it to you, Charlie, but even though your trouble is due to
someone else's error, it's up to you to fix it. If it's any
comfort, you're not alone. According to a 2004 study by the U.S. Public
Interest Research Group (PIRG), 79 percent of credit reports contain errors,
and 25 percent have mistakes serious enough to cause consumers to be denied
credit, loans, housing, or even jobs.
But there are steps you can take to clear your name. First, you should
contact each of the three national credit-reporting agencies—Equifax at 800-685-1111, TransUnion at 800-916-8800, and Experian at 888-397-3742—and follow their
procedures for disputing the error.
If the error was caused by a creditor supplying the wrong information, you
should also appeal to the creditor to write a letter clearing your name. If
that doesn't work, you should send each credit-reporting agency a statement
of 100 words or less explaining the dispute and request that it be attached to
your credit report. That way, any creditor who looks at your report will also
see the statement.
Under the Fair Credit Reporting Act, the credit bureaus must correct
erroneous reports within a reasonable amount of time—generally within 30
days. If your ordeal drags on, you should contact the Federal Trade
Commission (877-382-4357) to file a complaint. As a last resort, you might
also hire an attorney who specializes in consumer-protection issues (to find
one, contact the National Association of
Consumer Advocates). "Sometimes a couple of lawyer letters will get
the bureaus to spring into action," says Ed Mierzwinski, consumer program
director for PIRG.
A word of caution: no matter how frustrated you get, don't hire a
credit-repair agency to cleanse your report for you. These businesses are
notorious for charging consumers hundreds of dollars and not delivering
results. Better to make every effort to fix the report quickly, so that you can
try again to refinance while interest rates are still low.
Karen Hube is a financial reporter in Westport, Connecticut.
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