Credit bureau 101

Marketplace Staff Jan 26, 2007

KAI RYSSDAL:
One number can say a whole lot about you. And it might make you dream about simpler times. Like when you were wringing your hands over your GPA or SAT scores. They are nothing in comparison to your credit score. Those three digits can influence everything–your mortgage, your car loan, job offers. These days employers study your resume and your credit score. So it pays to do your homework to understand what goes into your credit score. But you might be surprised to hear that the credit bureaus operate with an air of mystery. Jason Rich is the author of a book called, “Dirty Little Secrets: What the Credit Bureaus Won’t Tell You.” Welcome to the show Jason.

JASON RICH: Thanks a lot.

RYSSDAL:
Lots of good stuff in this book that we’ll get to in just a second. First, I do have to ask you a question though. How did we get here that the credit bureaus basically run your life?

RICH:
I don’t know and that’s a question I asked the credit bureaus as well as all the other people I interviewed for this book. And everyone’s at an absolute loss. This has become such a big deal and so confusing that no one truly understands it, which is a little bit scary when you actually consider that when you talk to the credit bureaus they don’t understand the full ramification of how this impacts everyone’s lives.

RYSSDAL:
Yeah, it’s actually a lot scary. How do they figure out what your credit score is? I mean let’s start with the nuts and bolts here.

RICH:
Basically your credit score is a number between 300 and 850. The average in America is 678. And this number is calculated based on your payment history, meaning how quickly you pay your bills, whether or not you pay on time. It also has to do with how much money you owe and how much credit you’ve utilized. The length of your credit history in terms of whether you’ve had a credit card for six months or ten years and how long you’ve been in good standing with each of those lenders or creditors. The number of new credit items that you have added to your credit report. So every time you apply for a new credit card or get a new car loan, or refinance your mortgage, that’s a new trade line on your credit report. And the number of credit lines you have, or trade lines you have, impacts your credit score.

RYSSDAL:
Let’s say everybody checks their credit like they’re supposed to do once a year because it’s such an important number and you find a mistake, what do you do?

RICH:
It’s important to understand that each of the three credit bureaus publishes their own credit report for every consumer. So when you say get a credit report, you really want to get three credit reports, one from each credit bureau or actually pay for a three in one report. And if you find inaccuracies–this is information that is flat out false, the best bet is to go online–each of the three credit bureaus separately, they each have their own web sites and on your credit report there’s going to be a file number or code number. You type that in and then it’ll allow you to file a dispute. And you can correct false information. Or you can do it by mail, but if you do it by mail it’s a much slower process.

RYSSDAL:
Let’s get to that part where it’s not wrong what’s on your credit report, it’s actually accurate that you owe $72,000 or whatever it is, but you don’t want it on there. One of the tips in your book is that you’re allowed to write a bureau a personal statement and say hey my dog died, that’s why I owe all this money.

RICH:
Yeah, the personal statement is there if there’s extenuating circumstances. If you’re applying for a car loan or mortgage or some huge loan. If there is, you know, negative information on your credit report that’s accurate, what you’re going to have to do is for each item that you don’t like on your credit report, negotiate with the creditor or lender that put it there. They’re the only people that have the power to remove it or to change it. You know, for example if you’re willing to pay your outstanding debt in full, you’re much more apt to get something totally removed or to get that negative information changed to positive information. If you do something called settling the account, which means if you owe $10,000 and you offer them $6,000, it’s going to show it as paid, but it’s going to also say settled which stays on your credit report for seven years and actually will hurt your credit score but not as badly as an unpaid bill.

RYSSDAL:
How long might it take to fix a bad credit score? I mean let’s say, you know, you want to have a score of 700 but it’s 392.

RICH:
It depends what’s bad about it. If there’s something called a public record, which is a bankruptcy, a tax lien, a lawsuit, a judgment, that could hurt your credit report by 50, 60, 70 points. And if you’re able to clear up that unpaid tax lien, for example, you’re going to see your credit score jump dramatically very quickly. If you can get the creditor, you know, to take off a negative piece of information on your credit report, you know a credit card was totally unpaid, you neglected it–if you can get them to take that off, you’re going to see a spike in your credit score pretty quickly, usually within, you know, 30 to 60 days. And it’s just a matter of, you know, negotiating with these creditors, doing everything you can to get as much positive information on your credit report as possible and getting rid of as much negative information as possible.

RYSSDAL:
Jason Rich is the author of “Dirty Little Secrets: What the Credit Bureaus Won’t Tell You.” Jason, thanks a lot for your time.

RICH:
Any time.

As a nonprofit news organization, our future depends on listeners like you who believe in the power of public service journalism.

Your investment in Marketplace helps us remain paywall-free and ensures everyone has access to trustworthy, unbiased news and information, regardless of their ability to pay.

Donate today — in any amount — to become a Marketplace Investor. Now more than ever, your commitment makes a difference.

Raise a glass to Marketplace!

Just $7/month gets you a limited edition KaiPA pint glass. Plus bragging rights that you support independent journalism.
Donate today to get yours!