I got the opportunity to interview Joe Orsak, Director of Marketing for Improve My Credit USA, The Consumer Voted Number One Credit Repair Company in America. I had a few questions on credit reports and what someone does when they have a mistake on their credit report. Going through this post, you'll learn about the credit reporting industry, credit law, credit mistakes, what credit reporting agencies do when you report a mistake and how Joe's Company gets the agencies to fix the mistakes.
1. In a world with millions of startups, why is there only three players in the 4 billion dollar Credit Bureau industry?
There are actually hundreds of different bureaus that retrieve and store data on you. While you may be familiar with Experian, Equifax, and TransUnion (The three major Credit Reporting Agencies), you will probably also recognize the name Dunn & Bradstreet. D&B reports business credit information. There are far more bureaus in operation that are actively telling your story on a day to day basis than you'd realize but in the arena of credit scores as related to banking there are 3 major players.
The scale of operation that makes these 3 the go to companies is similar to Google, Bing, and Yahoo. There are probably a myriad of search engines out there, but because of the difficulty of that type of startup, the cost of entry is extremely high and getting traction even more difficult. The CFPB has a list that you can find here: http://files.consumerfinance.gov/f/201501_cfpb_list-consumer-reporting-agencies.pdf
2. 1 out of 5 Americans have a mistake on their credit report, and 1 out of 10 have an error on their credit report that's affecting their credit scores in a negative way. Why so many errors?
Well, this is a difficult answer because it involves both what we know and what we must speculate on. The immediate information we know to be true is that the credit bureaus use mathematical formulas which contain a partial name match and only seven of the nine digits of a person's Social Security number to match a name with all the accounts they are sent. In order to include every account possibly associated with the consumer, they use this broad net for searching data.
The credit industry asserts that this partial data search has a better guarantee for retrieving the full picture of the consumer's history of debt repayment. However, according to many experts and consumer advocates, the real reason credit bureaus cast such a wide net is that they have a financial incentive to do so. For example, according to Norm Magnuson of the Consumer Data Industry Association (the trade industry for the credit reporting industry), "It makes no sense and it harms consumers."
In the words of Susan Shin of the New Economy Project, a New York-based consumer advocacy group "They err on the side of giving too much information, even if it's not accurate... The bureaus' real customers are lenders, like the banks, and seeing all potentially negative information about a person could give banks an excuse to charge that person a higher interest rate."
So we see that there's a potential for banks, lenders, etc., to charge more money to a person who has a lower credit score. Banks make their money on interest and those with the highest credit scores get the zero interest opportunities. It makes sense then, that if the system allowed for some errors, there would be a financial gain to the largest clients of the credit bureaus. Is that what's happening? Well, it certainly seems like other industry experts are pointing out that possibility.
Consumer attorneys contend that another source of credit reporting inaccuracies are debt collectors, which often send inaccurate information to credit bureaus. According to the CFPB, the highest rate of disputes (nearly 40 percent) filed against the major credit reporting agencies have to do with debt collectors. "That suggests that collectors might be more prone to errors," Wu said.
So, it's basically a mix of all those issues that creates the current nightmare we see.
3. What kind of mistakes could be on a person's credit report?
That list is almost impossible to cover as it's huge. The errors range from small innocuous issues with little impact to grossly inaccurate files that are entirely incorrect and that are also causing a financial impact via decreased scores. Some of these items could include duplicate collection accounts, accounts that are entirely someone else's (IE. Collection accounts, public records, etc.) and some of these may be positively reporting good payment history but showing that you owe a debt which belongs to someone else.
There are also more deceptive issues where amounts owed are incorrect, credit limits are incorrectly reported or fail to report at all, etc. The list really is pretty amazingly long. The toughest part is knowing what to look for and that's where some people and governmental agencies believe the consumer #1 is responsible to ensure accuracy of their files (Like we've got nothing better to do) and #2 know the 300+ laws that govern the industry keeping data on us.
Just like representing yourself in court or doing your own taxes, unless you've been trained in the field, I never would encourage someone to work on their own credit file unless it was a simple issue (which they rarely are.)
4. What are the current internal processes at the credit bureaus when a consumer notifies them of a mistake on their credit report?
When a letter is received, the information is scanned into a system called E-Oscar and is turned into a three digit code. It is then forwarded on to the original furnisher of the information and sometimes includes a brief summary of the dispute information. In some cases, the Credit Reporting Agency (CRA) determines that the information provided by the consumer is sufficient to enable the CRA to update the consumer's file without submitting the dispute to the furnisher. By law the CRA's have 30 days to investigate the dispute and provide a result back to the consumer (With the rare exception of 15 additional days if the consumer provides additional documentation or questions during the investigation.)
5. Could you talk about the Fair Credit Reporting Act, and your experience with compliance? From what you've seen, what parts of the law do credit bureaus violate?
Any time a consumer files a request for verification of accuracy or a "dispute" stating that there is something wrong on their reports, the credit bureaus are required by law to conduct "a reasonable investigation" into the disputed information and remove anything they found to be unverifiable or inaccurate. According to DeVonna Joy, an attorney at the Consumer Justice Law Center, the reality is quite different. She states, "the credit bureaus actually spend very little time -- only a few minutes, at best -- investigating a consumer's dispute." Consumer lawyers conclude that this brief amount of investigation time is proof the bureaus are skirting the law.
Additionally, according to the Federal Credit Reporting Agency (FCRA), the bureaus are supposed to provide the supporting documentation to the furnishers so that the furnishers are able to investigate on their end. What they are provided is a three digit code and that's it and rarely the supporting documentation. In a recent ruling from the state of New York Attorney General Eric Schneiderman found that no reinvestigation occurred and that in the ruling against the bureaus, the CRA's were required to resolve this issue over the next 18 months.
Attorney General Schneiderman said. "The nation's largest reporting agencies have a responsibility to investigate and correct errors on consumer's credit reports. This agreement will reform the entire industry and provide vital protections for millions of consumers across the country." If the CRAs were required to do this in the first place, it's pretty easy to conclude that they were breaking the law. Let's hope they fix these issues.
6. What have been the strangest credit mistakes your company has ever seen?
Hmmm… I suppose mixed files where you get completely different names and socials showing up. Identity theft is also a tough one that can present weird issues. Once we had someone who had their credit cards stolen and the individual purchased several hundred dollars at a sunglass place in the mall. The creditor was insisting that the signatures were the same (Which it was obvious they weren't). What made it so funny is that they guy wore prescription glasses and the sunglasses from the mall were just regular sunglasses.
We also helped one client who had a photo of the person who had stolen his identity and knew the address where he was located but had prior been unable to get resolution in dealing with his issues. The guy had a mobile home in his name, a car, and multiple loans - none of which was he paying on time. It was pretty crazy. He couldn't get local police to act and was just getting the run around. We walked him through the process and eventually got him all straightened out but it was a mess.
7. I've heard that it takes people hundreds of letters, phone calls and years of time to remove a mistake from their credit report. What exactly does your Company do to remove mistakes from a person's credit report? How long does it take your Company to remove mistakes? What's the fastest you've done this and what has been the longest?
It definitely can be a cumbersome process; ESPECIALLY when you don't know the stall tactics that the CRA's employees use in order to make you go away. Why do they want it to be a pain? What real financial gain do the CRA's have to investigate your claims? Do you pay them in that process? Nope.
You must also remember that you are requiring them to investigate their number one clients who they make the lion's share of their income from. There's little real incentive. Consequently, they make it difficult and painful as possible. Having challenged the accuracy of thousands upon thousands of files, you start figuring out their game. Additionally, you just don't know what you don't know. If I asked you to look at your credit file and asked you to pick out the probable inaccuracies, you'd find maybe 20% of the issues. It just takes time to understand what you're looking at. Consequently, the average client is with us 4-6 months. I've seen clients have INSANE results in just one month but you never hold your breath for that. On the long side, 12 months though that's very rare. Most clients have seen their maximum results at 6 months.
8. Why do the credit bureaus give consumers a different credit report than the one they sell to banks, merchants and mortgage brokers? I've heard that the results on each can be different. Yours could have no mistakes and the one they sell to others could have mistakes. What's different about the reports? Why do they do this?
Generally speaking, the reports are going to have the same information but more commonly what you are referring to is the score. There are literally HUNDREDS of scoring models and that can get tremendously confusing for consumers. FICO has over 50 score models themselves. So when people say they have or need their FICO score, my immediate question is WHICH ONE! The main difference is between what are referred to as "Lender reports" vs "Consumer Reports." From the lender side, it makes sense as they will weight information based on why they're pulling the report. IE. A car dealer will use a scoring model that weights your car payment history as more important that other information. From the consumer side, it's extremely confusing. A good habit is to monitor your credit with a few different entities. Sites like Credit Sesame, Credit Karma, etc. provide free reports and from these you can get an overall sense of where your credit is at. If they indicate that your credit is "Good" then the scores a lender sees will generally follow that pretty closely. If they indicate that your scores are poor or fair, you probably should seek the assistance of a credit expert before applying for any loans.
I appreciate Joe's time and expertise, if you want a free consultation on fixing mistakes on your credit report then Joe's Company will give you a free consultation.