Important Note: Please read the Caveats and Advice section below before using any of the resources on this page, as sometimes well-intentioned attempts to repair your credit history can actually hurt your credit score instead. In particular, if you’re planning on using the info in this article to attempt to challenge legitimate negative items on your credit report or to challenge every item on your credit report, as some credit counseling companies and websites advise, please read the Caveats and Advice section below. For most consumers, doing either of those things will not help their credit score, and may actually hurt it.

Monitoring Your Credit

It’s important for people who use or plan to use any sort of consumer credit (car loans, credit cards, mortgages) to keep track of their credit history, and make sure that there is no erroneous information on about them in that history. In the US, there are three major credit reporting agencies (CRAs) that track credit histories on consumers: Experian, Equifax, and TransUnion. Under the Fair Credit Reporting Act, there are three ways that you can, for free, obtain your credit report from each of those three CRAs.

The first method of getting your credit report for free is via the government-sponsored AnnualCreditReport.com website, where you can submit a request to each CRA for them to send you a copy of your report.

Note that there are many other websites that claim to offer free credit reports, but AnnualCreditReport.com is the only site authorized to provide those reports under the Fair Credit Reporting Act; in particular, sites such as Experian’s FreeCreditReport.com (the one with the singing pirate slacker ads) are mostly just ways to trick consumers into inadvertently signing up for credit monitoring services that charge them hundreds of dollars per year if they don’t jump through specific hoops within a few days of receiving that “free” report, and Experian has paid serious fines as a result of FTC complaints about their site.

The second method, open only to consumers who have recently been denied credit as a result of a CRA report, is to make a request from the specific CRA whose report was used in making that credit decision. (For mortgage loans, where a “tri-merge” report from all three CRAs is usually required, consumers can request copies of their report from all three CRAs.) To do so, you would need to complete the relevant online form on each CRA’s website, within 60 days of receiving notice of your denial of credit:

• Submit a Post-Credit-Denial Request for your credit report to TransUnion
• Submit a Post-Credit-Denial Request for your credit report to Experian
• Submit a Post-Credit-Denial Request for your credit report to Equifax

The third method is to make a request directly to one of the CRAs under one of the three other provisions in the Fair Credit Reporting Act that allows for a free annual credit report; specifically:

• If you are unemployed and plan to look for a new job within 60 days;
• If you are on welfare; or
• If you believe that your report is inaccurate because of identity theft or similar fraud. (Note that simply disputing the accuracy of an item on your report is not sufficient to qualify under this provision–you must have evidence that some sort of identity theft-related fraud was committed that might affect your credit history.)

To take advantage of the third method, use the same links as for the Post-Credit-Denial requests.

Disputing Items On Your Credit Report

Once you have your credit report(s), the Fair Credit Reporting Act allows you to dispute any erroneous items on them. Those disputations must be in writing, with evidence proving the error included, and must be submitted to the address included on the credit report; the FTC has a very good overview of how to submit a dispute.

Under the Fair Credit Reporting Act, credit bureaus are required to review reports of inaccurate information and act on them within 30 days of receipt. Counting time for the report to initially be processed and then for you to receive notice of the action that they’ve taken, the full period for getting something like this resolved can take up to 45 days. (Most bureaus have a provision for filing a report online now, which can cut that time closer to the mandated 30-day period.) If your evidence is compelling and the creditor who originally reported the item cannot provide evidence to refute your claim, your report should be updated within that 45-day period. (If you file a dispute with a single CRA and that dispute is upheld, the original creditor is then also required to notify the other two major CRAs, and your file with them should be likewise updated, although that will usually only happen after the original CRA has been updated; if you are filing a dispute with a single CRA, plan on it taking as long as 90 days for the correction to propogate to the other CRAs.)

Caveats and Advice

1. If you are reviewing your credit as part of an attempt to get a mortgage, please coordinate with your mortgage loan officer before taking any actions, as your loan officer can offer advice that is more specific to your situation and that might not be immediately intuitive to a consumer. (For example, if a collection shows on your credit report that you resolved years ago, it may sometimes actually hurt your credit score to dispute it and have it updated, as that update would also update the “last activity” date for that item–a resolved collection that was last active this month is sometimes worse for your credit score than a very old collection for a small amount that is still unresolved.)

2. If you are attempting to dispute a specific item that was discovered while attempting to obtain a mortgage, then (depending on the urgency of resolving that item) it may be worth it to have your mortgage loan officer do a “rapid rescore” of your file, where you pay a fee to have your corrections updated in an expedited fashion (generally a week or two). The fee is generally ~$15-20 per update per bureau; updating a single item with a single bureau, then, might cost just $15, whereas updating, say, the records for 5 student loans that were being erroneously reported to all three bureaus might cost $300 (5 loans to update x 3 bureaus to update x $20 per update). Rapid rescores are often useful if the issue has just recently been resolved but the change has not yet shown up on your credit report, and you can’t afford to wait the 30-45 days for it to do so.

   If you can afford to wait, a good strategy for checking to see when the bureaus are updated is to request your free reports, one per week, until the update does show up; that way, your loan officer does not have to pay to keep getting updated scores for you until they are confident that the change has been made; that saves you money eventually, as those credit report fees are usually added in to your closing costs at settlement. If the items that you are waiting to have updated are preventing you from getting credit at all, you can also use the Post-Credit-Denial requests to get an additional 3 free reports, which means you could check weekly for up to 6 weeks, by which time the updates should be made and your loan officer can do a single official re-scoring of your file.

3. The rules regarding disputing credit history items include a specific exemption for frivolous requests. Submitting a disputation of every negative item on your credit report without significant substantiating evidence is generally considered frivolous and is at best ignored; at worst, it has been reported that these sorts of frivolous requests are themselves factored into credit histories and can lower credit scores.

Good luck, and if you have questions about your credit score or credit history, don’t hesitate to talk to your mortgage loan officer.

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The new system was cooked up by the three major credit bureaus (Equifax, Experian and TransUnion) to try to supplant the FICO score that most lenders use; the credit bureaus claim they came up with the new system to try to simplify and standardize credit scores, but the more probable reason is that they want to get a larger cut of the pie that Fair Isaacs, the company that calculates the FICO scores, has an effective monopoly on.

Currently, FICO scores range from 350 to 850, with higher numbers being better, and the new VantageScores will instead range from 500 to 990, with scores also being paired with a “letter grade” of A (900-990), B (800-890), C (700-790), D (600-690), or F (500-590); since most Americans are fairly familiar with such letter grading systems, and since the 500-990 scale corresponds roughly to a 50%-100% grading scale that some schools use for determining those letter grades, it could be argued that the new system would in fact make it easier for consumers to understand how good their credit rating is.

There are three big issues with the new system, though.

1. The biggest problem with the existing system isn't that consumers don't know what their scores mean–it's that their scores are often highly variable from one credit bureau to the other. Those variations come from two sources: one, the differences in the information that each credit bureau feeds through the FICO algorithm, and two, the differences in the information that each credit bureau has on file for a given consumer; as Michelle Singletary points out in the Washington Post, the new system will eliminate the first source of variation, since all three bureaus will be applying their new algorithm in the same way, but it will do nothing to change the second source of variation, which most experts believe is a far greater cause of innacurate credit scores. So the new system won't really create a more standardized set of scores–until the credit bureaus commit to eliminating inaccuracies in the credit reports on which credit scores are based (which they won't do anytime soon, as they have no real financial incentive to do so), all the new system will provide is scores whose variation from one bureau to the next will just be slightly smaller.
2. Slightly smaller variations plus slightly more understandable numerical scores might be a valid reason to use the new system, but it introduces a new, huge problem for lenders that would eclipse those tiny improvements–it invalidates all of the statistical models that lenders have come up with based on the current scores. Lenders use statistics and actuarial tables to decide which loans to issue and at what interest rate to issue them; without those statistics, they would essentially be gambling with their money, with no real way of knowing if in a few years they will have made a profit or if they will have gone bankrupt. Since there is no direct mapping between FICO and VantageScore ratings–one consumer who gets a FICO score of 700 might get a VantageScore of 880, while another consumer with a FICO score of 700 might get a VantageScore of 855, or 900–all of the lenders' current statistics become useless; while I'm sure that the credit bureaus will provide alternative statistical models for lenders to use, there's no reason for a lender to abandon a system based on probably billions of data points accumulated over decades and that they have evidence actually works, in favor of a generic model that they have no reason to believe would be any better than what they are using right now–especially not when you factor in the immense cost in technology of rewriting every one of their processing programs to use the new scores.
3. Lastly, VantageScore suffers from having an unwieldy name. FICO is short, and easy to say (it rhymes with “eye glow”, for reference, and the emphasis is on the first syllable). VantageScore is 50% longer, syllable-wise, and the “jsk” sound in the middle just doesn't roll of the tongue of most English-speakers; even lenders who shorten it to “Vantage” will still be saying 3 syllables vs. 2 if they pluralize them (e.g. “pull your FICOs” vs. “pull your Vantages”). It's a small thing, but it could be the nail in the coffin for VantageScore, given everything else working against it.

That's not, of course, to say that VantageScore is DOA. If the credit bureaus were smart, they would take a long-term view, and start providing the VantageScore ratings for free alongside any request for a FICO score; it's possible that, over time, lenders would accumulate enough data about how FICOs and Vantages correlate to make it reasonable for them to switch models, and at that point, if the Vantages were to be offerred at a discount as compared to the FICO scores, it's possible that lenders might be willing to switch.

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Hendricks’ book is a pretty good resource for those interested in how the credit scoring industry works and how that industry affects them, and from what I’ve seen and heard of Hendricks on various news shows, he seems to be a fairly informative and entertaining speaker. To attend the discussion, RSVP to Sheri Mercer by phone at 703-359-4337 or by email at <smercer@bordersgroupinc.com> seating at that Border's location is reported to be limited, so even if you RSVP, you may want to show up early to be sure that you aren't sitting on the floor in the back of the room.

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