How to Challenge a Derogatory
Entry on Your Credit Report
The three main credit bureaus maintain a consumer credit file about most adult Americans. Your credit file contains information about your buying and payment habits - both good and bad. Credit grantors, such as mortgage companies, vehicle finance companies and credit card companies, use the information in your file to decide whether to extend credit to you and at under what terms.
The information in your credit file comes from your current creditors - for example, were you payments made on time? do you have an outstanding balance each month? what are your outstanding credit limits?
Sometimes, however, the creditors who report to the credit bureaus make a mistake. The credit bureaus themselves make mistakes. Examples of mistakes include:
- reporting a payment as late when there was no late payment
- including creditor and payment information from another person’s file in your profile
- showing a paid off account, such as a mortgage, as still outstanding by hundreds or thousands of dollars
- showing an account discharged in bankruptcy as still owing
A June, 2004 report from a consumer protection group called the United States Public Interest Research Group reports that nearly 80% of credit reports have some type of mistake, and 25% contain a serious mistake that could result in an unnecessary denial of credit.. Everyone should regularly review and take action to correct errors in your credit report. Clark & Washington strongly recommends that check your credit report as you come out of bankruptcy since there will already be damage to your credit score caused by your bankruptcy,
How to Compel the Credit Bureau to Correct Errors
A federal law called the Fair Credit Reporting Act (FCRA) governs the error correcting responsibilities of credit bureaus. Specifically, the FCRA provides that the credit bureau must update and correct “inaccurate or unverifiable” information within a reasonable time.
At Clark & Washington, we recommend that you communicate with the credit bureaus in writing to correct errors and that your use return receipt mail when you contact Equifax, Experian or Trans Union. Here are some sample letters you can use when corresponding with the credit bureaus:
Letter 1 - initial communication and request for correction of inaccurate or unverifiable information
Letter 2 - if you sent Letter 1, and more than 30 days have passed since the date your letter was received (per the certified letter receipt), Letter 2 demands immediate action
Letter 3 - if you receive a form letter back from the credit bureau stating that they have conducted their investigation and that the challenged information is accurate, send this letter to demand that they reconsider their position
A persistent and consistent letter writing campaign should be effective in correcting most errors. If errors remain despite your letter writing efforts, you do have the right to file a lawsuit in federal court to ask a judge to order the credit bureau to change the information in your file.
Can I Correct Accurate But Damaging
Information Contained in My Credit File?
Despite what you may hear from so-called “credit repair” clinics, the FCRA does not permit you to remove accurate, but damaging information from your credit file. A reference to a bankruptcy filing, for example, will remain on your credit report for up to ten years - most of the time credit bureaus will ignore challenges to verified public information. The FCRA itself permits the credit bureaus from ignoring “frivolous” challenges.
Sometimes, the question of what constitutes “verifiable” information falls into a gray area. For example, if your credit file shows late payments on a credit card account that has been sold to three or four different companies there is a good chance that the current holder of that account will not be able to prove that your payment was late 18 months ago.
If the current account holder cannot verify the accuracy of the information it is providing to the credit bureau, you may be able to persuade the credit bureau to remove that damaging information from your credit file because it is no longer verifiable. Certainly, the more persistent you are about following up your written challenges in writing, the better the odds are that you can improve the appearance of your credit report.
Clark & Washington advises you to avoid spending money with credit repair clinics as most of these vendors are useless and will do little to help you. Under no circumstances should you try to trick the system by opening credit accounts with a fake social security number or false name. Further, another tactic that will not work involves creating a corporation or LLC and obtaining credit under a federal employer ID number.
Paying as many of your credit accounts as possible on time and in full affords the best strategy for restoring your credit after a bankruptcy, foreclosure or repossession. Further, you should avoid using more 20% of your available credit on each credit card. For example, if you have five credit cards, each with a $10,000 limit, you are better off using $2,000 of available credit for each of five cards than you would with zero balances on four cards and $10,000 balance on one card.
There are many good credit restoration resources available in bookstores - you can find step by step guides at Amazon.com for less than $20.00. Here are some examples: