Fair credit reporting act: common myths

Routinely we encounter customers who have credit questions/issues such as contemplation of bankruptcy, tax issues and collections. And we constantly educate them in regards the credit and collections laws. So in this article we wanted to touch base on some of the common myths of credit reporting.

The Fair Credit Reporting Act regulates the reporting of consumer credit and is under the auspices of the Federal Trade Commission. For the full act, visit http://www.ftc.gov/os/statutes/031224fcra.pdf

Per this act, all credit reporters must adhere to this act’s guidelines and report credit accurately. Further, all inaccurate information must be removed in a timely manner.

So here are some common myths and the truths connected with them:

Myth 1: Derogatory credit can ony be on my credit report for 7 years

Truth: most derogatory credit cannot be reported after 7 years with the exception of the following, per section 605(b):

  1. Credit transactions in an amount greater than $150,000
  2. The underwriting of life insurance in an amount exceeding $150,000
  3. The employment of an individual at an annual salary expected to exceed $75,000

In the above instances, a credit report could be pulled which could consist of information older than 7 years. So be sure to understand this before you file bankruptcy with a competent attorney.

Myth 2: A credit report cannot have both a charge-off form the original creditor and a collection account listed

Truth: a credit report can in fact have the original charge-off AND the resulting collection account from a third party

Myth 3: An employer can fire you for a derogatory credit report

Truth: generally, an employer cannot fire you for derogatory credit OR refuse to hire you for derogatory credit, unless the derogatory credit specifically relates to your job performance and/or the security of the job. However, at this time Congress is considering passing a law which limits a potential employer’s ability to pull your credit report and/or use the credit report in the hiring process.

Myth 4: A collection account can be sold an then reported by both the old third-party creditor and the current third-party collector

Truth: a collection account cannot be reported by more than one third-party collector, it may only be reported by the current owner of the debt

Myth 5: Derogatory credit does not impact other areas of life, such as life insurance, health insurance, auto insurance, opening bank accounts, opening stock brokerage accounts, etc.

Truth: derogatory credit does impact being approved for such things as insurance and can affect the rates and premiums you pay for insurance.

Editor’s note:

We at Jewelry Outlet always want to remind our customers why it is important for them to obtain and responsibly use credit. One helpful way to improve one’s credit is by adding a trade line and then only using a small portion of the trade line. This is an example of utilization, which is 30% of the credit score calculation. Thus with a top score of 850, the utilization category is 255 points of the total credit score (850 x .30).

If someone had one department store trade line of $500, but had maxed out the trade line by charging $500 of goods and services, then this person would lose almost all of the 255 points (out of 850), having a very high utilization of 100%. Thus assuming all other things on the person’s credit report were good, the highest credit score this person could achieve might only be 595 (850 – 255), as this person might lose all points for having a high utilization.

But if this person obtained another trade line (maybe a jewelry store account) for $5,000, now the person’s utilization would be only 9% ($500/$5,500). Thus this person’s credit score would increase, maybe by as many as 200+ points, possibly bringing the score up to over 800.

The person’s interest rate on an auto loan with a 595 score might be as high as 20%, whereas the interest rate with an 800 credit score might only be 2% to 5%. If someone purchased a $20,000 car, the lower interest rate would save $250 per month, for having good credit and low utilization.

This is the power of low utilization. And this why it is important to obtain a jewelry store trade line with a high limit.

Jewelry Outlet is the number one online jewelry retailer to help you enhance, establish and/or rebuild your credit. We offer easy credit terms for people with bad credit, new credit and no credit. Click here to Apply for Credit.

Posted by Christian C Culpepper