How to Correct Your Credit Report

Every American with a credit card, mortgage, or even a utility bill is being monitored by a credit reporting agency. If you haven't looked at your credit report in the past six months, it's high time you did. Not only are credit reports used by lenders to make credit decisions, but, in a dubious extrapolation of their usefulness, credit reports are used to assess the moral fiber of jobseekers and set insurance rates. Orwell would have loved them.

Under the Fair Credit Reporting Act, all consumers can see their credit reports for a fee of $8. (The report is free if you have recently been denied credit, insurance, or employment, or have spotted inaccuracies or fraud during the past 60 days.) Reports vary by vendor, but each one contains a list of your current overdue payables, recent late payments, and principal amounts due on mortgages, credit cards, auto loans, etc. A number of accounts may be omitted because not all credit card issuers submit information to credit reporting agencies. There are three titans in the credit reporting industry: Equifax (800) 685-1111, Experian (888) 397- 3742, and TransUnion (800) 888-4213. Take the time to order your credit report from each vendor.

Carefully review the information on each report. Besides the amounts, pay close attention to the names and addresses that show up-they may reveal identity theft. For example, your name might be attached to an account with an address where you have never lived. Or there may be merging errors, where the credit bureau has crossed your information with a database containing information from someone else. If you suspect somebody has stolen your ID, you need to take action immediately (see "How to prevent identity theft"). You should also identify dormant or closed accounts, which should be expunged from your file.

If you find an error, notify the credit reporting agency in writing. (Phoning the agency's hotline does not create an adequate paper trail.) Clearly describe which items on the report are inaccurate. Be factual and enclose photocopies of documents supporting your corrections. There is no need to be threatening...yet. Send the letter by certified mail, return receipt requested. By law the agency must investigate any items you call to their attention within 30 business days. The agency also is obligated to forward your complaint to the source of the flawed information, usually a bank.

Should the information provider be unable to verify the disputed data, it must be deleted from your file. Errors must be quickly corrected, sent on to the other credit bureaus and, at your request, to anyone who got a copy of your report during the past six months.

If you don't get satisfaction, send a follow-up letter. It that doesn't work, then it's time to play hardball. Contact the Federal Trade Commission, Bureau of Consumer Protection, CRC-240, Washington, D.C. 20580, (877) 382-4537, and explain the problem. Because credit bureaus and lenders try to avoid entanglements with the FTC, you should get prompt action. In the worst case, where you dispute something but simply cannot get it corrected, you are allowed to insert an explanation of up to 100 words in your file. Make the statement factual yet reassuring. For example, if one creditor was especially nasty you might suggest the reader evaluate your credit based upon all your other accounts. Don't go off and proclaim a jihad against a creditor-prospective lenders will not be impressed.

Credit report errors produce a ripple effect. Fair, Isaac & Co., a financial software developer, crunches data from credit bureaus to estimate the likelihood of a consumer defaulting on a debt. The Fair, Isaac system produces consumer credit ratings, known as "FICO" scores, that are scaled from 300-850 points (725 is the average). Not only are FICO scores used by 75 percent of all credit card companies and mortgage lenders to make credit decisions, but they also can determine what rate you will pay.

According to Fair, Isaac, your bill payment history is given the heaviest weight-ing and accounts for 35 percent of your FICO score. If your credit report is screwed up, your ability to get a loan may be impaired. Take a peek at your credit score by ordering it online for $12.95 at www.myfico.com. If you were turned down for credit before repairing your records, there is a little-known method of gaining a second bite at a loan. You can ask the loan officer to do a "rapid re-score," which will update your FICO score for recent activity in your finances. Re-scoring can be beneficial if you recently corrected errors in your accounts, paid off large overdue debts, or had credit problems that are now ancient history. (Charge-offs disappear from your record after seven years, bankruptcies after 10.) Beware of negotiated deals to partially repay your debts. From a FICO standpoint, semi-deadbeats and bankruptcy filers are considered equally bad risks.