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Solving Credit Problems
Facts for Consumers from the Federal Trade Commission
Solving Credit Problems -- May 1992
If you are having problems getting credit or paying your monthly
bills, you may be tempted to turn to businesses that advertise
quick and easy solutions to credit problems. But do not be
misled. There are no instant solutions. Although some credit
counseling businesses "guarantee results or your money back," you
may find that there are hidden strings attached or that the
company is gone when you want your money back.
There are steps you can take to help solve your credit problems.
However, solving them takes time, patience, and some
understanding of the law. This brochure may help you. It explains
why your credit history is important, how to build a credit
history and establish credit, and what can be done to improve a
bad credit history. It also suggests ways to help deal with debts
you may have, possibly by using a non-profit Consumer Credit
Counseling Service.
Why Your Credit History is Important
Although creditors usually consider a number of factors in
deciding whether to grant credit, most creditors rely heavily on
your credit history. To learn how you have handled credit in the
past, most creditors obtain a report from your local credit
bureau. Credit bureaus gather and sell credit information about
consumers and are a principal source of information about your
credit history. Your credit bureau report is based on information
supplied over time by your creditors. It also provides
information on where you live and work and may note other matters
of public record such as judgments or bankruptcies. Your report
records payments you have made on credit cards, installment
loans, and other credit accounts and helps creditors predict
whether you are likely to be a good credit risk. A history of
timely credit payments helps you get additional credit.
Some creditors are reluctant to grant credit to consumers who
have not established a "track record" with other creditors first.
In addition, many creditors will not extend credit to consumers
with a history of delinquent payments, repossession, judgments,
or bankruptcy. If you are in either situation, be wary of ads
that promise you "instant credit" or "a major credit card
regardless of your lack of credit history or your past credit
record." The fact is that all legitimate creditors want to know
whether you are likely to be a good credit risk. Whether you get
credit will depend on whether your qualifications meet the
creditor's criteria. No one can guarantee you credit in advance.
How to Build A Credit History and Establish Credit
Building a good credit history is important. If you have no
reported credit history, it may take time to establish your first
credit account. This problem affects young people just beginning
careers as well as older people who have never used credit. It
also affects divorced or widowed women who shared credit accounts
that were reported only in the husband's name. If you do not know
what is in your credit file, check with your local credit
bureaus. Most cities have two or three credit bureaus, which are
listed under "Credit" or "Credit Reporting Agencies" in the
Yellow Pages. For a small fee, they will tell you what
information is in your file and may give you a copy of your
credit report.
If you have had credit before under a different name or in a
different location and it is not reported in your file, ask the
credit bureau to include it. If you shared accounts with a former
spouse, ask the credit bureau to list these accounts under your
name as well. Although credit bureaus are not required to add new
accounts to your file, many will do so for a small fee. Finally,
if you presently share in the use of a credit account with your
spouse, ask the creditor to report it under both names.
Creditors are not required to report any account history
information to credit bureaus. If a creditor does report on an
account, however, and if both spouses are permitted to use the
account or are contractually liable for its repayment, under the
Equal Credit Opportunity Act you can require the creditor to
report the information under both names. When contacting your
creditor or credit bureau, do so in writing and include relevant
information, such as account numbers, to help speed the process.
As with all important business communications, keep a copy of
what you send.
If you do not have a credit history, you should begin to build
one. If you have a steady income and have lived in the same area
for at least a year, try applying for credit with a local
business, such as a department store. Or you might borrow a small
amount from your credit union or the bank where you have checking
and savings accounts. A local bank or department store may
approve your credit application even if you do not meet the
standards of larger creditors. Before you apply for credit, ask
whether the creditor reports credit history information to credit
bureaus serving your area. Most creditors do, but some do not. If
possible, you should try to get credit that will be reported.
This builds your credit history.
If you are rejected for credit, find out why. There may be
reasons other than lack of credit history. Your income may not
meet the creditor's minimum requirement or you may not have
worked at your current job long enough. Time may resolve such
problems. You could wait for a salary increase and then reapply,
or simply apply to a different creditor. However, it is best to
wait at least 6 months before making each new application. Credit
bureaus record each inquiry about you. Some creditors may deny
your application if they think you are trying to open too many
new accounts too quickly.
If you still cannot get credit, you may wish to ask a person with
an established credit history to act as your co-signer. Because a
co-signer promises to pay if you don't, this can substantially
improve your chances of getting credit. Once you have repaid the
debt, try again to get credit on your own.
What Can Be Done to Improve a Bad Credit Report
You are entitled by law to correct any inaccurate information
that appears in your credit bureau file. If a creditor rejects
your application because of negative information in your credit
bureau report, it must identify the credit bureau involved. At
your request, the credit bureau must disclose the contents of
your credit file. If you act within 30 days of being turned down,
there is no charge for this service.
Check to see whether the information in your credit report is
accurate and complete. You have the right, under the Fair Credit
Reporting Act, to dispute the completeness or accuracy of any
information in your report. When you do so, it helps to tell the
credit bureau, in writing, why you think the information is not
correct. Unless your dispute is frivolous or irrelevant, the
credit bureau then must reinvestigate the matter. The credit
bureau must correct any information that it finds is not reported
accurately. Information that cannot be verified must be
deleted. If you disagree with the results of the credit bureau's
reinvestigation, you may file a brief dispute statement
explaining your side of the story. At your request, the credit
bureau will note your dispute in future credit bureau reports.
Be aware that when negative information in your report is
accurate, only the passage of time can assure its removal.
Credit bureaus are permitted by law to report bankruptcies for 10
years and other negative information for 7 years. There is
nothing that you (or anyone else) can do to require a credit
bureau to remove accurate information from your credit file until
the reporting period has expired. Don't be misled by ads aimed at
people with bad credit histories, judgments, or bankruptcies.
Promises to "repair" or "clean up" a bad credit history can
almost never be kept.
How to Deal with Your Debts
A sudden illness or the loss of your job may make it impossible
for you to pay your bills on time. Whatever your situation, if
you find that you cannot make your payments, contact your
creditors at once. Try to work out a modified payment plan with
your creditors that reduces your payments to a more manageable
level. If you have paid promptly in the past, they may be willing
to work with you. Do not wait until your account is turned over
to a debt collector. At that point, the creditor has given up on
you.
Automobile loans present special problems. Most automobile
financing agreements permit your creditor to repossess your car
any time that you are in default on your payments. No advance
notice is required. If your car is repossessed you may have to
pay the full balance due on the loan, as well as towing and
storage costs, to get it back. Do not wait until you are in
default. Try to solve the problem with your creditor when you
realize you will not be able to meet your payments. It may be
better to sell the car yourself and pay off your debt than to
incur the added costs of repossession.
How to Evaluate Credit Repair Companies
If you are having trouble paying your bills, you may be tempted
to turn to a company that claims to offer assistance in solving
debt problems. Such businesses may offer debt consolidation
loans, debt counseling, or debt reorganization plans that are
"guaranteed" to stop creditors' collection efforts. Before
signing up with such a business, investigate it thoroughly. Be
sure you understand what services the business provides and what
they will cost you. Do not rely on oral promises that do not
appear in your contract. Also, check with the Better Business
Bureau and your local consumer protection office. They may be
able to tell you whether other consumers have registered
complaints about the business.
Consumers who turn to such businesses for help sometimes
encounter additional problems. For example, debt consolidation or
other large short-term loans may have high hidden costs and may
require your home as collateral. An unscrupulous company may
misrepresent the terms of such loan agreements; if so, you could
end up losing your home.
Businesses offering debt counseling or reorganization may charge
substantial fees or a percentage of your debts, but fail to
follow through on the services they sell. Some may do little more
than refer indebted consumers to a bankruptcy lawyer, who charges
an additional fee. Businesses advertising voluntary debt
reorganization plans or "Chapter 13" relief may fail to explain
that Chapter 13 debt adjustment actually is a form of bankruptcy.
To qualify for it, you must have a source of regular income and a
plan for repaying your creditors that meets the approval of the
bankruptcy court. Businesses that sell bankruptcy-related
services may not tell you all that is involved or assist you
through what can be a complex and lengthy legal process. Debt
problems can be distressing, but be careful when selecting a
solution. Some "solutions" may only add to your problems.
Where to Find Low-Cost Help
If you need help in dealing with your debts, you may want to
contact a Consumer Credit Counseling Service (CCCS). This is a
non-profit organization with more than 850 offices located in 50
states. CCCS counselors will try to arrange a repayment plan that
is acceptable to you and your creditors. They will also help you
set up a realistic budget and plan future expenses. These
services are offered at little or no charge to you. You can find
the CCCS office nearest you by checking the White Pages of your
telephone directory or by calling from a touch-tone phone
1-800-388-2227 to get the telephone number. However, if you have
other questions, contact:
National Foundation for Consumer Credit, Inc.
8611 Second Avenue, Suite 100
Silver Spring, Maryland 20910
(301) 589-5600
In addition, non-profit counseling programs are sometimes
operated by universities, military bases, credit unions, and
housing authorities. They are likely to charge little or nothing
for their assistance. Or, you can check with your local bank or
consumer protection office to see if it has a listing of
reputable, low-cost financial counseling services.
Where to Find More Information
The Federal Trade Commission enforces a number of federal laws
involving consumer credit, including the Equal Credit Opportunity
Act, the Fair Credit Reporting Act, the Truth in Lending Act, the
Fair Credit Billing Act, and the Fair Debt Collection Practices
Act. It also provides free brochures explaining these laws. For
these or related publications, such as Building a Better Credit
Record, Women and Credit Histories, and Credit Billing Blues,
write to: Public Reference, Federal Trade Commission, Washington,
D.C. 20580.
Although the Commission cannot solve individual problems for
consumers, it can act when it sees a pattern of possible law
violations develop. If you have a complaint that may involve a
violation of consumer protection law, write to: Correspondence
Branch, Federal Trade Commission, Washington, D.C. 20580.
5/85; 5/88
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