Basics of Consumer Credit

What is Consumer Credit?

Consumer credit is the borrowing of money for goods and services. This could be in the form of credit cards, personal loans, and other lines of credit. Total consumer credit comprises of two major types: revolving and non-revolving. The borrower agrees to pay back the borrowed amount plus interest over a set period of time, usually in monthly installments. Consumer credit is commonly used for big purchases such as cars, homes, and education.

Revolving credit

Revolving credit lets you borrow up to the pre-approved credit limit. The borrower is required to make monthly payments either on the full amount or regular payments. Interest is charged on the outstanding balance. Examples include credit cards, home equity lines of credit (HELOCs), and personal and business lines of credit.

Non-revolving Credit

Non-revolving credit is a type of credit a borrower repays in fixed payments over a set period. Unlike revolving credit, a non-revolving credit is a one time arrangement. Once the credit line is paid off, the lender closes the account. Examples include: home mortgage loans, student loans and business loans.

What is a Credit Report?

A credit report is a record of an individuals credit activity and current credit situation. The report is created by the credit reporting agencies also known as credit bureaus or credit reporting companies, that collect information about an individual’s credit accounts, payment history, and other financial transactions that is submitted to them by creditors, such as lenders, credit card companies, and other financial companies. Creditors are not required to report to every credit reporting company.

What’s in My Credit Report?

Your credit report will include:

Personal information

• Your name and any name you may have used in the past in connection with a credit account, including nicknames

• Current and former addresses

• Birth date

• Social Security number

• Phone numbers

Credit accounts

• Current and historical credit accounts, including the type of account (mortgage, installment, revolving, etc.)

• The credit limit or amount

• Account balance

• Account payment history

• The date the account was opened and closed

• The name of the creditor

Collection items

Public records

• Liens

• Foreclosures

• Bankruptcies

• Civil suits and judgments

• A credit report may include information on overdue child support provided by a state or local child support agency or verified by any local, state, or federal government agency.

Inquiries 

Companies that have accessed your credit report.

What are Inquiries?

An inquiry is a record of when a lender, a creditor, or other authorized entity requests to see your credit report. There are two types: hard inquiries and soft inquires.

Hard Inquiry: Occurs when a lender or creditor requests to see and individual’s credit report as part of a credit application for a loan or credit card. Hard inquires can impact a credit score and remain on a credit report for up to 2 years. Multiple hard inquiries within a short period of time can signal to lenders that an individual is seeking a lot of credit, which could be interpreted as a sign of financial distress.

Soft Inquiry: Does not impact credit scores and are not visible to lenders. Soft inquiries can be initiated by the individual when checking their own credit report or by organizations like employers or credit monitoring services.

How Do I Check My Credit Score?

As of April 2023, Annual Credit Report is still allowing access to free credit reports once a week. Go to this link: https://www.annualcreditreport.com/index.action to get your reports from Equifax, Experian, and TransUnion.

What if I See Errors?

If you see errors on your credit report, dispute the information with the credit reporting company in writing. Explain what you think is wrong, why, and included documents that support your dispute.

Actual Payment Information Suppressed

The biggest credit card companies are suppressing actual payment information on credit reports.

The CFPB reported in 2020 that the largest credit card companies are purposely suppressing customers’ actual payment amounts from their credit reports.  Actual payments are the amounts the borrower repays each month, as opposed to the minimum payments or balance. This means that millions of borrowers are missing key information of their repayment behaviors that impacts their credit. This suppression harms the opportunity to receive better financial offers and costs billions of dollars in interest expenses.

As of 2022, the CFPB reported that Americans paid over $120 billion annually in interest and fees on credit cards and since then the average interest rates charged by credit card companies have been quickly increasing.

Last May, the CFPB sent letters to the CEOs of the nation’s largest credit card companies - JPMorgan Chase, Citibank, Bank of America, Capital One, Discover, and American Express - asking if they furnished actual payment information. They asked why they stopped sending complete data and if they had plans to change their practice.

They learned that:

• One large credit card company took the move first, and the others started suppressing their data shortly after.

• The companies didn’t say when they intended to restart reporting actual repayment information.

• Companies suppress data to limit competition. By withholding information it made it harder for competitors to offer more profitable and less riskier customers better rates, products, or services.

Credit card companies are making it difficult for people to shop for credit and to save money. People expect that their credit behaviors - like paying credit card bills in full each month will be reflected in their consumer reports and credit offer they receive.

More Information from the CFPB: CFPB Summary

Free Report Weekly Until April 2022

On March 2, 2021 the three major credit bureaus, TransUnion, Equifax, and Experian in a joint statement said that they will continue to offer consumers free weekly credit reports until April 20, 2022 due to the ongoing COVID-19 pandemic. 

Prior to the pandemic, credit bureaus were required by law to provide a single free report just once a year and consumers were charged about $20 each additional time they needed one. 

Frances Creighton, president and CEO of the Consumer Data Industry Association, which represents the three credit bureaus told Consumer Reports Inc.: “None of us could have foreseen that the pandemic situation would last longer than a year.” This time is especially important for consumers to have the key to their financial information. 

Credit reports are used by lenders to determine whether you’re a good credit risk. Your credit report shows whether you made mortgage, credit card, auto loans, and/or student loan payments on-time. Employers, potential landlords, cellular service providers, and employers are able to review your report with your permission. 

Your credit score is calculated by the information in your credit report. This is the three-digit number that is meant to determine your creditworthiness. Getting a credit report on a regular basis can help consumers monitor their information because changes in the report can happen daily. 

You can obtain your credit reports at AnnualCreditReport.com. The credit reporting industry has seen an unprecedented amount of consumer complaints made to the Consumer Financial Protection Bureau over errors discovered in credit reports. Credit report errors accounted for nearly 2/3 of the total complaints in 2020, which is a rise of 23% from 2019 according to the CFPB’s complaint database. 

It was found that up to 1/4 of credit reports contain at least one mistake according to a 2012 Federal Trade Commission Report. Consumer Reports Inc. conducted a nationally representative survey of 2,223 U.S. adults in January 2021 and found that 12% of Americans who checked their credit report found an error. 

Errors include anything from incorrect address information to more serious problems, such as loans that are listed multiple times, paid-off loans that appear as still open, and/or information about someone else’s account that appear on your account. 

Last year, in another survey, participating consumers noted a range of mistakes on their reports. One man found that his mortgage was listed twice. His bank had promised to fix the error but it still remained on his report months later. Another consumer’s report had his sons information mixed with his own. One other found that an unpaid bill had went into collections in a state he had never lived in. 

These errors can negatively affect a consumers credit score and could be a particular problem for people who deferred loan payments with lenders or credit card companies. 

Last May, the Coronavirus Aid, Relief, and Economic Security Act was passed and required companies providing federally backed mortgages and student loans to offer deferrals while still reporting to the credit bureaus that the loan is current. Some credit card companies and auto lenders also offered deferrals. For some, those deferred loan payments were still being reported as late. This is another good reason to check your report often. 

There are consumers who are advocating that credit reports should be free permanently. They feel that consumers should not be charged to access their own data. Chi Chi Wu, an attorney at the National Consumer Law center, who has a focus on credit issues, said: “There’s nothing I can think of that would legally or logistically prevent the Big Three credit bureaus from making free weekly reports permanent”. 

Credit bureaus are suppose to look at all supporting documentation when a consumer files a dispute, but they very often do not. Agencies should ensure that any supporting documents a consumer submits in the automated dispute filing is considered in the bureau’s review of their case. Oftentimes the task of reviewing disputes is outsourced and the bureaus will usually accept the results of the outsourced investigation without questioning the accuracy of the findings. 

Currently, credit bureaus will only match 7 of the nine digits of a social security number in the consumes report. To avoid errors, advocates are pushing for the bureaus to require the matching of all nine digits. 

If you find an error in your report you should file a dispute with the three credit bureaus. TransUnion, Equifax, and Experian are separate companies so the disputes must be filed to each. It is best to send a letter by certified mail and keep copies for yourself. The paper trail will make it easier to confirm that the credit bureaus are following the lawful time lines. You should avoid filing disputes online because often credit bureaus have standardized forms that might force you to oversimplify your situation and never have an actual representative look at the dispute. 

Along with the letter, you should include any evidence. This could be account statements or information on payments made that will protect you from a credit bureau dismissing your claim because of lack of sufficient backup information. Avoid resubmitting a evidence later on because it could be denied if the claim is considered similar to previous ones. 

Dispute Still Denied

If your disputes get denied consider hiring an experienced lawyer to file a case. We specialize in FCRA law, your consultation is free, and your legal fees will be covered so there is no out of pocket expense. 

Personal Statement 

You are able to add a personal statement to your report to help explain your situation. Banks and other institutions will typically read and consider this note when making a decision about your creditworthiness, especially if you lost a dispute and have a negative item on your report. 

Ask to send updated report

If you won a dispute you should ask the bureaus to send out an updated report. This new report will go to anyone who has checked your report within the past six months. 

Keeping Good Financial Health

The most important financial document you can have is your credit report.  It is used by lenders to determine if you qualify for a loan, insurance, renting a property, and it may even be checked when you apply for a new job. 

Information contained in your credit report is used to calculate your credit score. To maintain and/or increase your credit score, you have to check that the information that the credit bureaus are collecting are is accurate and the activity is remaining positive. 

Keeping your credit score up comes from :

• Paying bills on time

• Not opening too many credit accounts

• Keeping your credit card balance below 30% 

Even government-regulated agencies such as Transunion, Equifax, and Experian can make mistakes. The Federal Trade Commission reported that 1 in 5 people had an error in their credit report in 2012.

How does this happen?

It could be that a lender had sent the credit bureaus the inaccurate information. This includes information about your transaction history, or you could have a mixed file with someone who shares a similar name and social security number. An error could also be a sign of identity theft. 

The only person who is keeping tabs on your credit report for accuracy is you. We recommend that you check your credit report at least once a year. You are allowed to request an annual free credit report at annualcreditreport.com. Since the Covid pandemic consumers are able to view their credit report once a week for free. Everyone should take advantage of this service, especially at this time where finances are are difficult. 

Lenders are not required to report to every company, so the information you find on a Transunion may report differently than on Experian and Equifax.  

The specific details in each credit report may be different, but they all follow a similar structure. It is important to check the personal information of your credit report carefully:

• Current and former names

• Current and former addresses

• Birthdate

• Social security number

• Phone numbers

• Spouse or co-applicants

• Current and former employers

Errors in this section could indicate a mixed file or a stolen identity. If you find an error it is important to dispute the wrong information immediately.

Your credit report contains a section for “Soft” and “Hard” inquiries. Soft inquires are requests made by outside parties, such as lenders who want to offer you unsolicited credit. They request your information to see your credit worthiness. These do not affect your score. Hard inquiries will affect your score. These are made by lenders when you apply for credit, employment, insurance, etc. You have to authorize the hard inquiry when you apply.

If you have debt related mistakes, it is important to contact the lender first and clearly explain the error that was made. They will likely fix the error without protest, especially if you have been a good customer. They are required to alert the bureaus of the mistake, but you should also file a dispute to the bureaus to make sure the communication was successful. 

When communicating with the credit bureaus about an error in your report, it is important to collect any and all documentation that supports your claim. This could be bank statements, bills, contracts, legal documents, and emails. An effective way to dispute is to write a letter to the bureau as opposed to disputing online, so that a real person must look over your information. In the letter you should clearly outline the error(s) and explain the steps you have already taken to fix it. When finished, send the letter along with copies of your documents to the bureaus using certified mail. It is important to keep track of all communication. 

If you need help with anything related to your credit report, use our contact form to send us an inquiry. We will get back to you within 24 hours!